Most Profitable Real Estate Investments in Toronto (2021)

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Most Profitable Real Estate Investments in Toronto

Given that Toronto is Canada’s business capital and a growing financial hub in North America, what better decision than investing in this highly competitive business environment? Investing in real estate is always considered a smart move, it would be much better to invest in a city like Toronto with such enviable economic growth and quality of life.

For a profitable investment, you need to study your target market well before making any decisions. If you are thinking of buying an investment property, you probably know that it will be difficult to decide on the right type of property for a profitable investment. Because in the Toronto real estate market, just having money is not enough and you need more information to make the best investment. In the following, we will go through some important tips about the most profitable real estate investment options in Toronto.

Toronto’s hot real estate investment market attracts a variety of investors. According to RBC estimates, resale sales in Canada increased by 13% last year and it is expected to increase in 2021. But as an investor, before making any decision, it is best to consult your accountant, financial advisors, and certainly consult a top Toronto realtor.

Related articles: What are the best places to invest in Toronto (2021)

Most important option: Principal Residence Property Investment

This option is definitely the most important way for real estate investment when it comes to taxes. Buying a Principal Residence can be a long-term investment plan. In this case you are not paying your landlord’s mortgages. Instead, you will pay off your own mortgage. Besides, in order to buy your principal residence, you should gradually save your money for a downpayment and use the downpayment to take out a mortgage for buying a Principal Residence. So that helps you with the habit of saving money.

The status of the property purchased as a Principal Residence is of particular importance in your financial planning. Because you can get a tax exemption from the Canadian Revenue Agency (CRA) from the profits you make by selling your Principal Residence. The profits arising from selling your principal residence is called Capital Gains. And Capital gains on your principal residence (at the time of writing this article) is tax free (check with your accountant for the latest changes in CRA guidelines).

However this tax exemption is only applicable for your principal residence. It means you should still pay tax on gains for selling your recreational or investment properties.

There are some important tips you may need to consider when you want to buy a Principal Residence, including:

  • DTI: If you, as a real estate investor, have a bad debt-to-income ratio (DTI), you may not be eligible for a mortgage on a new home.
  • The housing market situation
  • Current economic environment
  • Your own lifestyle

House flipping

House flipping means that the property you are buying must be specially renovated or improved. If you are renovating a property, it must have the potential to add value to the house. If you do it right, you might make a significant profit from house flipping, which is a lucrative way to invest in real estate in Canada. Note that this may seem like a piece of cake, but house flipping is not always so easy. You need to be aware of additional problems and costs, and come up with the right strategy. You also need to know your local real estate market very well before starting house flipping and consult with several people who have done it before.

It is recommended to get consultations from a real estate agent before buying a fixer upper property to make sure that the property can be resold as much as you want. First, estimate and compare the renovation costs to the final price. If the property has major defects such as structural problems or basement leaks, you will face major problems and costs.

Most Profitable Real Estate Investments in Toronto

Rental Properties

If you are not comfortable with the risks of house flipping, you can consider buying a rental property instead. It is better to buy a rental property in a suitable neighborhood that is more attractive to tenants. The more services there are around the rental property, the more attractive it will be to potential tenants. But the following issues should be considered when buying a rental property:

  • Mortgage rates for rental property are higher than principal residence.
  • If you hire a property manager to manage it, the total costs plus the loan may be higher than the rental income of the property.
  • Capital-gains taxes are also applicable for rental properties.
  • You should spend time finding and dealing with tenants and managing the maintenance

Vacation Properties

Before buying a vacation property, you must know that your goal is just for personal use or investment. If you are buying it as an investment, be careful in choosing the best neighborhood. It is better to be in a high demand and quiet location, for example, near the lake or the beach with the possibility of easy access. By doing this, you can get an acceptable income from renting it either short term or long term.

The advantage of this option is that if you cannot be a full-time owner of a vacation property, you can consider time-sharing. The time-sharing option allows  you to share the cost and usage of the property with other owners, which of course the income from the property will be divided in the same proportion. Buying timeshare from the resale market can be more profitable.

REITs (Real Estate Investment Trust)

REITs are companies that own profitable assets and generate profit from them, including offices, apartments, hospitals, shopping centers, and even residential properties. This option is a great way to invest in real estate in Canada. For this purpose, you can buy REIT stocks of the publicly-traded REITs listed on the stock exchanges through a broker, which is exactly like the shares of any other trading company.

It is best to talk to your financial advisor about buying REITs or investing in REIT ETFs. Or you can invest your money in an automated service and use such services to manage your stock trading. By purchasing REIT stocks, you will earn significant real estate investment profit without any hassle for tenant management, finances, and building maintenance.

Renting the Spare Rooms

Renting a residential property does not necessarily have to be done in the traditional way. Fortunately, short-term rental websites allow you to rent an extra space on your residential property. In this case, you can earn extra profit by renting, for example, an extra bedroom in your house.

The important thing before renting an extra room is to check the municipal regulations and the rules of your condo board to make sure there are no restrictions. Also let your insurer know that you will have a lodger because the short-term tenants may not care for the property like you, and the insurer may want to increase the home insurance due to additional risk.

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