In Toronto, one of the most common methods of real estate investment is owning a tenanted rental property. While this type of investment is fairly low-risk, the duties associated with property and tenant management aren’t for everyone.
Toronto’s diverse housing landscape offers a variety of avenues for investment, some of which don’t require becoming a landlord.
Whether you’re looking to break into Toronto’s vast housing market as an investor or are a seasoned entrepreneur searching for new ways to expand your portfolio, this piece will cover options that don’t involve tenant sourcing or management.
Do you currently own an investment property? Click here for important insights about how today’s real estate market may impact you.
1. Traditional Property Flipping
Most real estate investors are familiar with the concept of property flipping. In short, this type of investment involves purchasing a low-cost home (often in need of significant repairs or improvements), undertaking a series of high-ROI renovations, then selling the home at a substantial profit.
With a number of popular TV programs reintroducing property flipping to a mainstream audience, Toronto has seen a modest influx of new investors in this field in recent years. Buying property in a state of disrepair and converting it into a high-value, marketable home may seem simple on paper, however, with any major home improvement project, there are a lot of variables that need to be accounted for to ensure a strong return.
Executing this kind of investment successfully requires strategic planning and expert guidance. As an investor, one of the best resources to have at your disposal is a real estate agent. Not only can they help you find well-priced properties that have strong upgrade potential, but an agent’s industry Rolodex can connect you to any number of professionals you may need support from during the flip, such as contractors or interior designers.
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2. Tear Downs
Property flipping is far from a singular process. While the purchase and renovation of an unkempt home is the most common pathway, there are other angles of approach. In particular areas of West Toronto where lots are larger, such as Etobicoke, some investors will tear down existing homes completely, opting to build an opulent modern property in its place.
While a form of property flipping in its own right, tear downs are a specialized process. With the physical demolition of the existing property and complete construction of a new property, teardowns require a far higher upfront contribution than traditional flips.
These early costs are offset upon sale as the new high-end home caters to affluent buyers. However, the significant upfront investment can be a barrier for many first-time entrepreneurs.
Market Awareness
Like owning a rental property, flipping requires playing the market. What makes this type of investment unique, however, is the timeline. In most instances, investors who purchase, renovate, and resell properties are looking for short to medium-term gains. As quick turnaround allows for faster returns and the ability to proceed with other investments, timing is a critical factor in property flipping.
During the 2010s, Toronto’s red-hot real estate market was on a seemingly unstoppable upward trend. As average property prices climbed month over month and competitive buying conditions made sales more lucrative, buying a home in Toronto, particularly one requiring renovations was a wise investment. Today, the market has balanced out – and while it is possible to find success with this kind of investment, even the most seasoned investors should work closely with real estate market experts.
Ideally, this means working with a real estate agent who is a longstanding industry leader and has experience working in a variety of market conditions. As a dedicated professional, an agent will have their finger on the pulse of every facet of Toronto real estate, including the investment landscape.
New Federal Actions on Flipping
In April of 2022, the federal government announced a series of strategic initiatives aimed at refining Canada’s housing landscape, with affordability One noteworthy facet of these actions is new taxations applied to flipped properties. More specifically, this will entail new laws that ensure personal earnings from property flipping are adequately taxed.
In particular, anyone who sells a property they have owned for less than a year is deemed to be flipping properties professionally and is liable to full taxation on their earnings as business income. This rule would apply to residential homes purchased on or after January 1, 2023.
There are exemptions, such as Canadians who sell their house owing to death, disability, the birth of a child, a new career, or a divorce. A complete list of exemptions will be established in future legislation, and the government has committed to consulting homeowners during the draft process.
Looking for even more helpful information about real estate investment and property management? Explore these blog posts catered to Toronto entrepreneurs.
- What Makes a Good Investment Neighbourhood in Toronto?
- Everything You Need to Know About Buying an Investment Property
- 2022 Federal Budget Actions on Housing and Real Estate
3. Investing in Your Existing Home
One of the simplest ways to invest in Toronto real estate is in your own home. In addition to being the place you live, your home is a substantial asset. As a homeowner, you have the potential to build upon your investment while you live there, even if you have no intention of selling in the near future.
Optimizing your current home to increase long-term market value requires a strategic approach. While it may not involve playing the market, the easiest way to navigate the process and ensure a strong ROI is by working with an experienced real estate agent. Your agent can help you build a comprehensive plan for upgrading your home customized to your unique goals.
Looking for new and innovative ways to invest in Toronto real estate? We’ve got the unmatched industry expertise to empower your investment goals. Send us an email.
