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Property Investment in Toronto: Tips for Beginners

It’s no secret that property can be a smart investment choice, especially in a city like Toronto where demand for housing can seemingly never be sated. But for a successful property investment journey, you have to start with good information, so you can make informed decisions. Here we have broken down the essentials you need to know to get you on the road to profitability.


What Type of Investor Are You?

Let’s start with the basics, as the why of your investment decision will dictate the best path forward. Toronto is home to many different types of property investor, including those who:

  • Use their investment as their primary residence

  • Invest purely for rental income streams

  • Sublet part or all of their property to help pay off borrowing costs

  • Flip properties for short-term profit

  • Invest in pre-construction properties

  • Invest in mixed properties (with both commercial and residential potential)

  • Invest in Real Estate Investment Funds (REITs)

All of the above investor types are relying on the same underlying characteristics within the property market, but are approaching it in different ways. The majority of Toronto property investors, however, purchase one or more residential properties directly, to rent out while benefitting from long-term growth in the property’s value. Given this is the most popular mechanism to invest, for the rest of this article we’ll focus on this.


Understanding the Risks and Rewards of Property Investment

Every good investment decision starts with understanding both the potential upsides and downsides. In Toronto specifically, these include:


High Equity Gains

Perhaps the biggest attraction for investors in Toronto’s real estate market is the potential gains. The past 5 years have shown an average yearly growth in property prices of 6%, and this trend is by no means expected to change in the future. Toronto’s population is continuing to grow, and although the city is investing millions in new transit and infrastructure, ensuring even more demand for housing, investment in new housing is lagging, meaning a continuing limited supply.

Key Data Point: The average annual growth in Toronto property prices is 6%.


Source: Precondo, 2023


Predictable Income

The housing shortage in Toronto also means that rents are high, with the growth in average rental rates a startling 23% in 2022 - higher than in any other Canadian city. This reflects the fact that Toronto is the fastest growing city in North America. In addition, vacancies are very low, so property owners are more or less guaranteed tenancy, ensuring cash flow to cover any borrowing on the property.

Key Data Point: The median monthly rent in Toronto is $2542.


Tax Advantages

There are several tax advantages to property ownership in Canada, over and above the benefits of other investment types. For example, operating expenses (such as property management fees, insurance, utility bills, property taxes etc.) can all be deducted from rental income. To find out more about property taxes in the GTA, read Toronto Real Estate Taxation and Rebates.


Financing Woes

One of the big drawbacks of property investment is the amount of money required for it. Financing is harder to get for investment properties than it is for owner-occupied households (especially since the mortgage stress test was introduced), and you’ll almost certainly need at least a 20% deposit to even get the ball rolling. Given Toronto property prices, saving this 20% is no small feat on its own. One way to counteract this issue is to find cheaper properties; read more on this in our blog on Finding Discounted Properties in Toronto.


Property Management

Managing a property investment portfolio is significantly more burdensome than managing other types of assets. If doing it yourself, you need to allow for the time it’ll take to manage tenants, maintenance, rent collection, accounting, and so on. This is why so many property management companies exist in Toronto.

Key Data Point: Property management firms in Toronto typically charge 8-15% of monthly income, plus HST.


Getting Started with Property Investment

If you’re sure that property investment is right for you, then your next steps should be as follows:

  1. Understand your financial position, your budget, and your investment goals (including target return on investment, risk tolerance, and timeline). Make sure to account for the potential tax implications of your investment decisions.

  2. Research the best strategies and markets within Toronto that will meet your needs and abilities. This will put you in a position to hunt for the best opportunity, for you, in a targeted manner.

  3. Assemble a team of professionals, including a real estate agent, accountant, lawyer, and property manager (if applicable) so that you can hit the ground running, and so that you understand costs fully, upfront. This is also the time to explore your financing options.

  4. Search for the property that best suits your needs. Remember to focus on your investment criteria and remain impassionate. Use your team to ensure any transaction goes smoothly.

  5. Once you own an investment property, it’s important to stay organized, to keep detailed records, and to have an exit strategy.


Source: Medium, 2021


Strategies for the Toronto Market

Lastly, here are some strategies and tips to help you make the most of your investment journey:

  • If you’re worried about monthly costs, increase your downpayment to lower borrowing costs and increase monthly profit.

  • Don’t let flashy finishes affect your perception of the potential income from a property.

  • Hold on to your investment for the long-term to see really big gains.

  • Don’t focus on already popular areas - find out where’s up-and-coming.

  • Consider a multi-unit building if you’re experienced in being a landlord; the workload is not significantly more but the rental income can be. But be wary of living in a unit yourself - if you live in less than 50% of the house, you’ll still pay capital gains tax on the whole house and lose the primary residence tax exemption. 

  • If you’re struggling to bring together a downpayment, or to qualify for financing, consider purchasing property as a joint venture with another person to share the costs and the rewards.

  • Use leverage wisely. While financing can amplify your returns, it can also increase your risk. 

  • Understand the unique pros and cons of a pre-construction opportunity before diving in - and be wary of flashy deals.

  • Short-term rentals are quickly falling out of fashion in Toronto, so be wary of this as a business model.

  • Remember that the best cash flow properties typically appreciate more slowly than average, so decide which is a bigger priority: cash flow or short-term equity growth.  


With Investing, It’s All About the Numbers

Investing in a property is a very different exercise than buying a home; remember to focus on the numbers to determine whether something is right for you. 

Key Data Point: Most Toronto property investors reach break-even with a 20% downpayment.

For help in finding the perfect property for your investment goals, talk to one of Sutton Group’s experienced real estate agents.