Are you looking to buy an investment property in Toronto or the GTA but don’t know how to get started? If your answer is yes, you’ve come to the right place! We at Birks Asset Management want to share a few real estate investment tips with prospective landlords like yourselves so that you can secure the right property for your means. We hope to guide you to make the best decisions in your property purchase with our tips.
Table of Contents
Understand Why You’re Interested in Buying An Rental Property Investment
There are three reasons why people tend to invest in properties: to own a property as an appreciating investment, to generate a source of income through tenancy, or buy & sell for a quick flip.
If you’re interested in buying and selling a property for a quick flip, keep in mind that timing is everything. Suppose you purchase a property for a low cost and it quickly appreciates with the market, then you’re likely to make a profit. However, if you buy a property at the peak of the market, then you’re likely to lose. Remember, real estate isn’t the same as stocks because it’s not a liquid investment, meaning you may not be able to sell the property as quickly as you want if you want out.
On the other hand, it’s beneficial to own real estate as a long-term investment rather than a quick flip because it generates capital appreciation over time. For these reasons, it’s essential to determine your purpose in buying an investment property. If you’re considering buying a pre-construction property on assignment, check out our blog “5 Resourceful Reminders When Buying A Pre-Construction Property On Assignment In Toronto And The GTA.”
Consider Your Finances
Purchasing an investment property isn’t the same as buying a principal residence. Mortgage lenders typically see rental properties as risky. Thus, you may encounter higher down payment and borrowing rates along with stricter qualification requirements.
Consequently, you must evaluate your finances before getting into the real estate market. Compare your financial situation with mortgage rates, appraisal costs, legal fees, and property taxes (which differ by the municipality). While you compare your finances to these expenses, consider unexpected costs as well, such as significant repair bills and interest rate increases. It’s ideal to have resources set aside in advance to prepare yourself for any unpredictable circumstances that may result in a loss.
Determine the Property’s Cash Flow
Once you’ve determined your finances, it’s time to decide how much income your property will generate.
When it comes to setting rent prices, the location of your property is a determining factor. Buying a property in desirable commercial areas is beneficial to remain appealing to renters. This will also allow you to adjust the rent prices to complement economic inflation, which will secure your income. Examples of desirable commercial areas are Mississauga, Brampton, and Etobicoke.
For each property you own, calculate your expected cash flow. Start with the annual rental income and then deduct your expenses like borrowing costs, maintenance, property taxes, and insurance. If you’re planning to include utilities as part of the rent, add that in. The main goal should be a positive cash flow and a sufficient return on your investment.
On the bright side, expenses you incur in renting out the property are usually considered tax-deductible. Suppose your expenses exceed your revenues; you can apply that loss against other income you have to reduce your overall tax bill.
Find a Profitable Rental Property Investment
When shopping for a rental property, look at several factors like location and accessibility to determine if the property is a profitable investment.
Investopedia lists 10 features of a profitable rental property: neighbourhood, property taxes, schools, crime, job market, amenities, future development, number of listings and vacancies, average rents, and natural disasters.
How is the neighbourhood? Is it close to a public school, university, or college? Considering the property’s community will determine the types of tenants you attract and your vacancy rates.
What is the infrastructure of the community? Is there easy access to transit, school, shopping, or recreation? Understanding the area’s infrastructure will help determine the property’s appeal to potential tenants, defining occupancy rates.
It’s also essential to consider how close you are to the property. Can you reach the property promptly, if need be?
Determine How Involved You Can Be in Managing A Property
The truth is, owning a rental property comes with many responsibilities, such as collecting rent, attending to tenants, and organizing paperwork. That’s why it’s valuable to determine how much responsibility you can take on and how it affects your other obligations like your family or full-time job. Depending on your other commitments, it may be challenging to tackle all the tasks of being a landlord. Thus, be mindful of your time and all your other responsibilities.
An alternative to managing all the responsibilities of a landlord while still making a profit is to hire a property management company, like Birks Asset Management. With our years of experience, we know how to be a point of contact for you and your tenants, giving you the peace of mind and cash flow you deserve. Overall, several factors to consider when purchasing a rental property in Toronto and the GTA. But don’t fret because we’re here to answer all your questions and concerns. All you have to do is Contact Us.
5 Helpful Tips on Buying a Rental Property Investment in Toronto and the GTA
Are you looking to buy an investment property in Toronto or the GTA but don’t know how to get started? If your answer is yes, you’ve come to the right place! We at Birks Asset Management want to share a few real estate investment tips with prospective landlords like yourselves so that you can secure the right property for your means. We hope to guide you to make the best decisions in your property purchase with our tips.
Table of Contents
Understand Why You’re Interested in Buying An Rental Property Investment
There are three reasons why people tend to invest in properties: to own a property as an appreciating investment, to generate a source of income through tenancy, or buy & sell for a quick flip.
If you’re interested in buying and selling a property for a quick flip, keep in mind that timing is everything. Suppose you purchase a property for a low cost and it quickly appreciates with the market, then you’re likely to make a profit. However, if you buy a property at the peak of the market, then you’re likely to lose. Remember, real estate isn’t the same as stocks because it’s not a liquid investment, meaning you may not be able to sell the property as quickly as you want if you want out.
On the other hand, it’s beneficial to own real estate as a long-term investment rather than a quick flip because it generates capital appreciation over time. For these reasons, it’s essential to determine your purpose in buying an investment property.
If you’re considering buying a pre-construction property on assignment, check out our blog “5 Resourceful Reminders When Buying A Pre-Construction Property On Assignment In Toronto And The GTA.”
Consider Your Finances
Purchasing an investment property isn’t the same as buying a principal residence. Mortgage lenders typically see rental properties as risky. Thus, you may encounter higher down payment and borrowing rates along with stricter qualification requirements.
Consequently, you must evaluate your finances before getting into the real estate market. Compare your financial situation with mortgage rates, appraisal costs, legal fees, and property taxes (which differ by the municipality). While you compare your finances to these expenses, consider unexpected costs as well, such as significant repair bills and interest rate increases. It’s ideal to have resources set aside in advance to prepare yourself for any unpredictable circumstances that may result in a loss.
Determine the Property’s Cash Flow
Once you’ve determined your finances, it’s time to decide how much income your property will generate.
When it comes to setting rent prices, the location of your property is a determining factor. Buying a property in desirable commercial areas is beneficial to remain appealing to renters. This will also allow you to adjust the rent prices to complement economic inflation, which will secure your income. Examples of desirable commercial areas are Mississauga, Brampton, and Etobicoke.
If you want to learn more about setting rental prices, check out our blog, “5 Constructive Steps Birks AM Takes To Set Rental Prices For Tenants.”
For each property you own, calculate your expected cash flow. Start with the annual rental income and then deduct your expenses like borrowing costs, maintenance, property taxes, and insurance. If you’re planning to include utilities as part of the rent, add that in. The main goal should be a positive cash flow and a sufficient return on your investment.
On the bright side, expenses you incur in renting out the property are usually considered tax-deductible. Suppose your expenses exceed your revenues; you can apply that loss against other income you have to reduce your overall tax bill.
Find a Profitable Rental Property Investment
When shopping for a rental property, look at several factors like location and accessibility to determine if the property is a profitable investment.
Investopedia lists 10 features of a profitable rental property: neighbourhood, property taxes, schools, crime, job market, amenities, future development, number of listings and vacancies, average rents, and natural disasters.
How is the neighbourhood? Is it close to a public school, university, or college? Considering the property’s community will determine the types of tenants you attract and your vacancy rates.
What is the infrastructure of the community? Is there easy access to transit, school, shopping, or recreation? Understanding the area’s infrastructure will help determine the property’s appeal to potential tenants, defining occupancy rates.
It’s also essential to consider how close you are to the property. Can you reach the property promptly, if need be?
Determine How Involved You Can Be in Managing A Property
The truth is, owning a rental property comes with many responsibilities, such as collecting rent, attending to tenants, and organizing paperwork. That’s why it’s valuable to determine how much responsibility you can take on and how it affects your other obligations like your family or full-time job. Depending on your other commitments, it may be challenging to tackle all the tasks of being a landlord. Thus, be mindful of your time and all your other responsibilities.
An alternative to managing all the responsibilities of a landlord while still making a profit is to hire a property management company, like Birks Asset Management. With our years of experience, we know how to be a point of contact for you and your tenants, giving you the peace of mind and cash flow you deserve.
Overall, several factors to consider when purchasing a rental property in Toronto and the GTA. But don’t fret because we’re here to answer all your questions and concerns. All you have to do is Contact Us.