“A good piece of real estate is like a blue chip stock. It won’t make you rich overnight, but it will perform well.” – Don Campbell
Historically, the real estate market booms in Spring. If you’re wondering if this year will be different, in light of sky high prices, I want to tell you that with strategic planning, real estate in Toronto is still a good investment. The thing is, in order to get significant returns, you have to plan for the long term. Optimally, long term means a life time. However, you don’t have to wait that long to profit. You’ll want to hang on to your property at least until your investment matures – seven to ten years.
Here’s a story about a woman who set out to make as much money as she could in Toronto real estate. June is a fictional character inspired by an article I read yesterday in Moneysense.
June found a house to buy for $600,000. She managed to put down 10% ($60,000), which was her savings plus every dollar she could scrape together.
Over the next seven years the value of that house climbed by $120,000. June did a happy dance when she discovered she’d made a $60,000 profit (before interest, taxes, and expenses).
That means even though her house went up in value by only 20%, her ROI was 100%.
Leverage Your Investment
Leveraging your investment dollars means you increase the potential return of an investment by using financial instruments or borrowed capital. There’s solid strategy behind the best leveraging situations, namely:
- You must earn more, monthly, than your mortgage and interest payments.
- Use leverage. Plan your investment strategy around it.
- Forecast what increased interest rates might be to assess your ability to continue your payments if rates increase.
- Ensure, when investing in rental properties, that the monthly rent you bring in is enough to cover all your expenses, including:
- regular maintenance
- contingency fund
The last point is of significant importance. A contingency fund may be needed, for example, if a roof collapses due to extreme snow. Or a nasty tenant you evicted refuses to leave and you have to hire a lawyer.
Another important point if you are considering investing in rental property is the type of dwelling. Multi-unit properties are better than single-unit properties.
That way if a tenant doesn’t pay rent or if you have an empty unit one month, that loss of rental income can be absorbed by the other units.
Location should also figure highly in your strategy plan.
Rental markets outside of the downtown core can be best if you think in terms of rental need. Suburban areas around colleges, universities, and hospitals provide constant demand for rental units.
Examples of Ontario regions that fall into this category include Guelph, Hamilton, and Kingston.
So you see, making money in Toronto real estate is possible with a solid strategic plan in place. I’d love to talk with you about your long term investment strategy.
Just pick up your phone and call me at 416-834-3688