Many real estate investors have understandably stepped back from the market as interest rates and inflation have soared over the last few years. Finding a tenant to help carry the cost of an income property can be challenging, not to mention it is more difficult to obtain financing.

However, the best time to invest is often while others have stalled. Their hesitation could be your opportunity! With news of potential rate decreases on the horizon, it may be time to start thinking about your next move.

In this post, we’ll talk about the advantages of investing in Toronto real estate, the challenges, and how to find financing once you spot an opportunity. 

Why Invest in Real Estate?

If you have a dollar in your wallet and decide not to spend it, there is one thing you can count on: that dollar will always be worth exactly one dollar, no more and no less. 

If you could multiply your dollar by 100,000 or a million, you could generate interest income by putting it in the bank. But growing your wealth in this way is far more slow than steady.

Invest in real estate, however, and your net worth can grow much faster. Over the last ten years, housing values have skyrocketed in Toronto. According to the Toronto Regional Real Estate Board, the average price for a house was $520,398 in December 2023. Ten years later, the average grew to $1,084,692. 

If you had invested in a house back then, you would have more than doubled your net worth, and that’s not even counting any rental income you could have received. Imagine how long it would take to earn an extra $564,294 using any other vehicle, and you’ll quickly see why so many investors turn to real estate.

Are you ready to take your real estate investing to the next level? The resources below can help:

What Are the Risks?

Real estate can be highly profitable and rewarding, but it is not for everyone. Though it is one of the safest investments, it is not without some risks. 

There is no guarantee that houses will continue their meteoric rise in value. Over the short term, housing prices can actually fall, as we saw from 2022 to 2023. However, when you consider how fast Toronto’s population is growing, we can reasonably expect real estate prices to rise steadily over the long term. You can protect yourself from many of the risks associated with real estate investing by following a few precautions.

  • Set aside emergency funds that allow you to carry the property through vacant periods and short term fluctuations in value.
  • Vet all tenants carefully before signing a lease agreement.
  • Worth with a local real estate team to help you assess the profit potential of a particular property before making your investment.

Where Will the Money Come From?

If you decide to embark on the exciting journey of Toronto real estate investing, a whirlwind of questions is likely racing through your mind. First and foremost, how will you finance your venture? With the average price of a house hovering around $1 million, chances are you don’t have the cash lying around. Even if you did, most investors will still look for financing options like the ones below.

Traditional Lenders

The most obvious place to look for financing is with a traditional mortgage from your local bank or credit union. Typically, you will need a 20% down payment to qualify for a mortgage on an investment property. There is one exception, however. If you’re a first-time buyer, you can search for a home that will be your primary residence and also has a secondary suite to rent out. This benefits you in several ways.

  • You may be able to take advantage of government programs for first-time buyers.
  • If the property is less than $1 million, your down payment will be smaller.
  • The bank may consider rental income in your application, which means you could qualify for a higher loan amount.

Secured Equity Loans

Do you already own a home? If so, you could already be on your way to a successful investment journey. A home equity loan allows you to cash out on a portion of your equity, which you can then use toward your down payment on an income property. 

You’ll also hear this type of loan called a second mortgage. Once you find a tenant, you carry the second home with little to no cash flow required. As both homes rise in value over time, your equity grows even more. 

Alternatively, you can apply for a HELOC (Home Equity Line of Credit). It is similar to a second mortgage, except you can pay it off whenever you want without penalty. 

Government Grants and Subsidies

Due to the housing shortage, governments at all levels are under pressure to come up with solutions. One of these is to encourage real estate investment, which will help to increase the supply of rental units.

As with first-time buyers, there are also several government programs in place for investors. For example, you may be eligible for a grant of up to $50,000 when purchasing a depreciable property to rehabilitate and rent out. A local real estate agent can also shed light on other subsidies and tax rebates for investors. 

Private Lenders

Banks are not your only option when financing your income property. Private lenders backed by investment companies may also be available. The downside is that they often charge a higher interest rate than banks and credit unions since private companies generally want to see a significant return on their funds. 

However, if you find the perfect opportunity, you may not have time to wait to see if a bank will approve your mortgage. In this case, a private lender can come through faster, often with less hassle and red tape. A mortgage broker can help you explore your options and find the best terms for your investment.

Vendor Take Back Financing

One option you may start hearing more about is a “vendor take back mortgage.” This happens when the sellers lend you the funds themselves to buy their home. 

If the homeowner has already paid off their mortgage, vendor take back financing can allow the sale to go through faster. The buyer has fewer hoops to jump through, and the seller has the chance to set their own interest rate on the loan. 

Thinking of selling your existing home to fund your next steps? The posts below will get you off to a great start:

Financing is the foundation of a successful real estate venture. Fortunately, other possibilities remain open even when one door closes. Your next step is to explore your options and pursue the opportunity that best aligns with your goals and resources.

Do you have questions about the investment opportunities in Toronto real estate? Reach out today to david@batorigroup.com, bobby@batorigroup.com or call (416) 485-7575, and we will be happy to provide you with guidance for your next steps.