For a number of reasons, when it comes to owning real estate, your first purchase should always be a primary residence.
There are several first time homebuyer initiatives extended by the government to help homeowners take that sensible first step, including tax-free withdrawal from RRSPs. First-time homebuyers can also take advantage of putting forth a down payment of as little as 5%-20%, with a sliding scale of premiums, through the backing of CMHC (Canadian Mortgage and Housing Corporation) or Genworth; furthermore, the government offers a capital-gains tax exemption on the sale of a principal residence. These government initiatives not only help Canadians satisfy the fundamental need for shelter, they provide opportunity to profit from the housing market.
After our clients have stepped into the homeownership pool, we encourage them to consider acquiring an investment property as part of their portfolio. Owning a property where the rents pay off a mortgage is a great way to secure your financial future, particularly in the city of Toronto, where real estate investment offers considerable upside. As with all investments, it behoves potential investors to investigate all options available to them. Investing in various property types require different things of an investor, bear contrasting degrees of risks and yield varying rewards. Depending on the amount of capital you have, plus the time and energy you’re willing to invest, there are a few options available.
Consider Purchasing a Recreational Property: This is well-suited to those who desire a secondary property they can use themselves during the year, while generating an income to offset the debt and operating expenses. This type of purchase best serves those who don’t mind the management associated with doing short term furnished rentals (mostly seasonal), as well as the upkeep required to keep the property and its contents in good condition. While this is not definitively a money-maker, in particular because recreational properties do not increase in value at the same pace as other properties, it is a proven way to build equity through rental income combined with enjoying the benefits of respite in nature. Who doesn’t dream of owning an escape from the city?
Contemplate Purchasing a Condominium: Of all the property types, this one offers the greatest ease of operation. Being one of several units, most condominiums have a property manager and board of directors who, as part of your monthly common fee, ensure the building is kept in good operation and repair. As a result, the investment of your own time is minimal; you are responsible for finding a reliable tenant and attending to basic interior maintenance associated with the wear and tear of everyday living.
While this is one of the easier ways to build an investment portfolio, supported by the location, location, location mantra of real estate, investment ownership of this property type is not without its challenges. Your building could be poorly constructed or mismanaged, resulting in special assessment levies or a substantial increase in the monthly common fee. Case in point- many of you may have heard about the horrors of ‘leaky condos’ that decimated the financial security of many homeowners on the West Coast.
While location will typically facilitate securing tenants, if you are purchasing in a large complex, in an area that has several hundred condominiums, or in a location dominated by investors, then both the rental income and the market value of your condominium can be influenced by supply and demand. Don’t forget, if you are one of several hundred similar units in size, location and style, the first unit to rent or sell will be the one that is the most aggressively priced. As a result, the opportunity to profit can be impacted by the micro-market of your building, such that values will be based on the most motivated of owners.
Think about a Two or Three Unit Freehold Property: While this property type does not generally require as much maintenance as managing a seasonal rental, this type of ownership carries with it far more responsibility than purchasing a condominium. The key is to find one in good repair and in solid condition. Also to consider, having more than one unit means having more tenants to manage. Wear and tear increases, and you need to be able to handle some of the operational maintenance associated with a freehold property like snow removal, garden maintenance and garbage pick-up. Depending on the level of retrofit and construction of the dwelling, you may have one thermostat controlling the central heating and cooling systems, one wiring panel serving the entire property and/or the property may not meet fire code.
While we encourage owners to do a utility split where each tenant pays a proportional share of the expenses relative to the size of the unit, this can be problematic should one tenant not pay their portion in a timely manner. Landlords should make a serious effort to ensure each unit is equipped with smoke/co2 alarms and fire extinguishers. We also advise owners to rent units a bit under market value to reduce turnover and vacancy, particularly if there is a basement suite which typically
has the highest rate of vacancy. By reducing the rent to a tenant in return for household responsibilities like snow removal, garbage bin pick up and retrieval, yard maintenance and cleaning of common areas, one can potentially ease the hassles associated with this form of investment.
If you’re interested in purchasing an investment property in the City Of Toronto, or know someone who is, please know this is one of our fortes. With a multi-disciplinary education in housing, over twenty years of real estate sales, marketing and development including a sterling reputation as one of Bosley Real Estate’s Top Producers, myself and my team make it our mandate to guide buyers and sellers through all their real estate needs. Log on to http://www.urbaneer.com to learn more about us! Not online? Just pick up the phone and call us for an introductory package at 416-322-8000.