Knowledgeable real estate investors understand that the best time to buy is in a ‘down’ market. Less competition typically provides the chance to acquire properties at a lower price than when the market values are higher.
However, they also know how to look beyond the obvious for opportunities many others may not see. For example, current interest rates at the present remain high even with the recent cut by the Bank of Canada. At the same time, the almost insatiable demand for rental units and opportunity to buy at a better value today than in a hot Seller’s market could make it worthwhile to begin the search for your next income property.
For beginning investors or anyone looking to grow their portfolio, there are plentiful opportunities in the Toronto and GTA condo market right now. There are also several new incentives and developments that make it the perfect time to dive back in. In this post, we’ll take a look at what investors should know to make the most of the rental market today.
Incredible Opportunities in Resale Condos
The market for existing condos, also called resale condos, has softened over the last year, with conditions beginning to lean in favour of buyers and investors. First of all, there is more inventory available than at this time last year. Secondly, prices are down. This combination gives you more options to choose from as you evaluate which properties have the most income and equity potential.
Investing in a condo is also ideal for beginners who want to keep it simple and with minimal overhead. A Buyer can reduce their carrying costs by placing a higher down payment, which is also made easier by lower prices. Before diving in, you should always analyze your income potential and expenses carefully. Even if a property just breaks even, the future equity growth often makes the investment worthwhile as housing values rise over time.
Toronto is one of the best places to live and invest for many reasons. You’ll discover just a few in the posts below:
- Top Ten Luxury Neighbourhoods In Toronto
- How Toronto Compares To International Cities
- 5 Up-And-Coming Neighbourhoods For Investment In Toronto
The Potential With Pre-Construction Projects and Assignment Sales
The number of sales of pre-construction condos has also decreased. Even though Toronto housing prices are holding steady overall, it may be possible to secure a condo purchase on an assignment sale at lower-than-market values or less than what the original purchase price was.
Think of how many people bought into projects four or five years ago. With a combination of rising interest rates and changing economic conditions, some are no longer in a position to close. As a result, some are open to selling their assignment to get out of their contract, even if it means taking a loss on the original purchase price.
Assignment sales can be a fantastic opportunity for savvy real estate investors. That said, they can also be complex as buying on assignment is more involved then a straightforward resale purchase. Working with a Realtor® like Tanya Crepulja who has extensive knowledge and experience buying and selling on assignment can help you navigate towards a profitable outcome.
Do you want to know more about how assignment sales work? Here’s an article you may enjoy: What Is an Assignment Sale?
Garden Suites: Opportunity in Your Own Backyard
Garden suites have been permitted for a few years now, and some investors are just starting to realize the massive potential they offer. What better way to increase the supply of housing in the city than constructing separate dwellings on the same property as an existing home?
The City of Mississauga is also beginning to promote garden suites by offering free design plans as part of their initiative from the Housing Action Plan. These pre-approved plans make it easy and more cost effective for homeowners across the city to add additional dwellings in their own backyards.
You still have the option of hiring an architect to draw up a custom plan if you have a clear vision in mind. However, these done-for-you designs will save you time and money if this is an avenue you choose to pursue. The faster you construct your garden suite, the sooner you can begin generating rental income. Both studio and one-bedroom designs are available.
For some families, a separate garden suite allows you to keep your loved ones close while each household enjoys the utmost privacy. For investors who already own their own homes, it represents an opportunity to add value and generate income.
Constructing a garden suite is typically less expensive than buying a new property, which makes it an excellent option for novice investors who are just starting to develop their portfolios.
Less Red Tape for Developers
Most cities across Canada are facing a housing shortage, and all levels of government are trying to find solutions to accommodate the growing need. Rapid construction of new homes, townhouses, and condos won’t just benefit the end users, however. It will also be great news for investors. A variety of programs and policies are in place to help make this happen.
- The “Cutting Red Tape to Build More Homes Act, 2024,” which aims to speed up the approval and building process while maintaining strict environmental controls and consumer protection.
- The “More Homes Built Faster Act” is an Ontario initiative that allows up to three residential units on one lot without needing a municipal by-law amendment. This includes adding a legal basement apartment or even a garden suite to an existing home. Plus, it eliminates developmental charges.
- The “Apartment Construction Loan Program,” a federal plan to help fund the construction of 101,000 rental homes by 2031.
Mortgage Insurance Incentives
Mortgage insurance may not be a glamorous topic, but it’s a fact of life for all homeowners in Canada, including those holding rental properties. Lenders have a vested interest in protecting any funds they lend out, which means you’ll need to add mortgage insurance to any purchase where you provide less than a 20% down payment.
However, there could be good news on the horizon for Canadian real estate investors, especially for those who are committed to providing affordable rental options via multiple-unit residences.
The Canada Mortgage and Housing Corporation has recently introduced a policy called MLI Select. The goal is to encourage ethical real estate investing based on providing affordability, accessibility, or energy efficiency to the rental market.
Focusing on one of these objectives can give you access to lower insurance premiums and longer amortization periods. Combine all three, and the incentives add up even more.
Multiple-Unit Zoning in Toronto
New changes to zoning laws have made it easier than ever to increase your earning potential by converting single homes into multi-unit dwellings, even in residential neighbourhoods where this was formerly prohibited.
Due to the long and pronounced housing shortage in the GTA, all three levels of government are working to ensure enough supply, now and as the population grows. Allowing multiplexes with two to five residential units in a single structure is just one solution.
For investors, it can be a win-win scenario as each property you buy creates multiple revenue streams. In addition, multi-unit homes tend to increase in value faster, allowing you to benefit from greater equity growth.
Are you ready for even more advice to help you become a savvier investor? The resources below will help:
- How To Get Started As A Real Estate Investor
- What To Look Out For When Buying Pre-Construction
- Should You Sell or Rent Your First Condo When You Move?
Understanding the Capitalization Rate
Capitalization Rate, also known as “cap rate”, is a term all experienced real estate investors will quickly become familiar with. In simple terms, it’s a tool you can use to assess the viability of a particular property before making a purchase.
The cap rate is calculated by dividing the expected net income by the value of the asset. In general, a cap rate of over 5% means a property has strong potential. However, this is not a realistic expectation in Toronto and the GTA based on mortgage interest rates and acquisition costs, as not all properties will be cash flow positive.
That said, determining the cap rate is not the only tool you can use to decide whether to invest. You should also take other factors into account, such as recent market trends, the condition of the home, and the level of risk you’re willing to undertake.
As you explore your options, remember that real estate investing can be as simple as buying a condo or a single family home. You can start small and grow your equity by having a tenant pay down the mortgage. If you have questions or need guidance, the Tanya Crepulja Team is here to help.
Changes to Capital Gains in Canada
“Capital gains” are among the two least favourite words among real estate investors in Canada. The way it works is that you are taxed on a portion of any realized gain in an asset that you own, including an income property. In the past, capital gains were capped at 50%. Here’s an example of what would happen if you decided to sell an investment home.
Imagine you acquired a property for $500,000. Over the years, it has increased in value to $700,000, leading to a $200,000 gain. Up until now, 50% ($100,000) would have been added to your income if you decided to cash out by selling the property.
As of June 2024, that amount has been increased to 67% ($134,000) for any realized capital gains that exceed $250,000 in a year. For some investors, this increase might be a deterrent. However, keep in mind that you only owe this tax when and if you decide to sell the property.
When investing for the long term, you should not be discouraged by capital gains.
By the time you do decide to sell, the increase in your equity will likely outweigh any loss due to taxes. In addition, you may even have more opportunities as other investors move to the sidelines.
Like any investment, the key to success in real estate is to buy while property values are relatively low. Then, you’ll want to hold them long enough to realize a substantial equity gain. Keeping the big picture in mind will help you succeed as a Toronto or Greater Toronto Area investor, whether you plan to keep it small or grow your portfolio extensively over time.
Do you have questions about how you can succeed in today’s real estate market? Whether you’re an experienced investor or just starting out, the Tanya Crepulja Team is happy to help. Reach out today at tanya@tcteam.ca or call 647-293-3785 to take the next steps.
