Are you thinking of buying a home that provides more space? If so, you may see selling your current property as the next logical step. In many cases, it is—but if you’re looking to start or grow an investment portfolio, renting out your existing space may be the better option.
If you’re thinking of upsizing and keeping your current home as an income property, here’s what you should know…
Being a landlord comes with immediate benefits
If you start renting out your property, you’ll enjoy passive monthly income (which means extra cash, without having to be actively involved on a day-to-day basis). This is a significant advantage for you if you’re upsizing. It means that much of your focus can go towards your purchase, and you can use the rent you take in to cover the payments for your new mortgage.
Another major benefit of renting instead of selling is the ability to sell your home when the market is right. Timing is everything, and listing under the best possible conditions can lead to a much bigger return. By holding onto your home as an investment, you’ll have the flexibility to do just that. You’ll also have the option of making improvements to boost its value.
As previously mentioned, if you currently have investments on the go, leasing your current property can help you diversify your portfolio. If you’re just getting started, you might find that it’s a great way to make the transition to becoming an investor. After all, Toronto real estate is relatively low risk and high return, as far as investments go.
Interested in learning more about investing in real estate? Here are some of our top resources on the subject.
- Everything You Need to Know About Becoming a Landlord in Ontario
- What Makes a Good Investment Neighbourhood in Toronto
- Everything You Need to Know About Buying an Income Property
The math probably works in your favour
For most real estate investors, one of the biggest considerations when purchasing an income property is cash flow. If you’re new to investing, it may seem like a complex concept, but it’s not.
Put simply, a cash flow positive property is one that brings in more money than you spend to maintain it. In other words, the rent it brings in should be higher than your mortgage, property taxes, insurance, etc. Be sure to allow for turnover between tenants, as well as potential repairs and upgrades.
To be clear, a property can be a good investment even if it’s cash-flow negative. That said, as a general rule, it’s best to make sure your operating expenses are covered—and then some.
In Toronto and Etobicoke, where there’s no shortage of tenants searching for places to live, there’s a very good chance that your home will be cash-flow positive. That said, there are exceptions. Examples include older properties that require a lot of upkeep, luxury spaces where value may outpace what renters are willing to pay, and homes in neighbourhoods that are less-than-ideal for renters.
You can get a sense of whether your home is cash-flow positive by adding up your monthly expenses and subtracting them from how much rent you can reasonably expect to receive. For the latter, look into what other landlords are charging for similar properties.
Of course, there are other financial factors that can make a particular space a good investment. That’s one of the reasons why working with an experienced local real estate agent during this time can be highly beneficial.
Preparing to upsize? Learn how to minimize your stress while you do it right here.
Local homes are a great long-term investment
The Toronto real estate market is known for its impressive year-over-year gains and deep-rooted stability. Historically, local appreciation rates are impressive. In other words, owning a rental property here won’t just provide you with a new income stream. It will also serve as a great investment in the long term.
When it comes to future financial security, there’s nothing quite like building equity. It’s good to know that when the time is right, you can cash in on your investment—whether you do so to retire, handle an emergency, help out loved ones, or for some other reason altogether.
You can find assistance if need be
There’s a reason why the money generated through a real estate investment is described as passive income. That said, the idea that there’s little to no work involved is a misconception, which is why knowing your responsibilities as a landlord is one of the keys to making an informed decision.
The good news is, you don’t have to handle everything on your own. If you don’t have the time to tackle all the details—or you think you could benefit from the help of a professional—an experienced property manager can help ensure that your tenure as a landlord goes as smoothly as possible.
Ready to purchase a larger home? For over 36 years, our clients have trusted us to minimize risk, offer unbiased opinions, and ensure their best interests are served. Contact us today to talk about your needs, by emailing us at evan@christensengroup.ca or calling us at 416-441-2888 ext. 766.
