Investment Properties 101: Location and Property Type
August 26, 2021
I’ve always been a proponent of investment properties. In a city like Toronto, property values continue to go up in the long-term and while there are no guarantees, it’s considered a relatively safe investment.
The only real downturn in the rental market over the past several decades has been during the pandemic, and it’s already started to recover.
When you’re considering an investment property, there are a number of things you need to think about including location, what kind of property is best, finding a good tenant and of course, financing.
Location is always key in real estate, but when it comes to a city like Toronto, no location in the downtown core shines over another when you’re talking about rental rates.
There are going to be neighbourhoods where everybody wants to live that may command a bit of a premium, but you’ll also pay more for the unit.
You may want to look at a neighbourhood that isn’t yet fully developed. Rental rates are going to be similar to other downtown locations, but there may be more equity growth in the future when you sell.
One of the great things about downtown Toronto is proximity to amenities. Any prospective tenant is going to want to rent an apartment close to parks, shops, transit and potentially, schools. Almost every neighbourhood will have access to these things, but if you want to make sure, one tool you can use is walkscore.com. Type in your own address and see what comes up!
House vs Condo?
There is always a little concern about being a landlord and dealing with problems. If you’re not handy, a condo is your best bet.
Condos tend to sustain themselves. If an issue comes up like a heating unit failing or something from another unit affects yours, the corporation has resources available to help you with it. They may do the repair for you or your insurance may kick in to cover the expense. Of course, you’ll have to deal with an upset tenant and make a couple of phone calls, but it’s been my experience that if you have a plan to deal with these things right away and communicate with your tenant, it keeps thing running smoothly.
A house or multiplex can be a little more labour intensive in terms of keeping up with what needs to be looked after. It may increase more in value over time, but it will also be significantly more expensive to purchase and if you’re looking to break even on a monthly basis, you’ll have to have a lot of cash on hand to use as a down payment.
Keeping your carrying costs down
Speaking of breaking even, the goal for most people is to break even on an investment property from month to month. If the rent being paid is more than your carrying costs, you’ll have to pay taxes on that. If the rent being paid is less than your carrying costs, you’re paying for someone to live in your apartment. It should all work out in the end because the tenant is helping you build equity, but it’s never a good thing to be losing a substantial amounmoney month after month.
Older buildings tend to have higher maintenance fees, so although the initial purchase price might be lower, the carrying costs will be higher, which affects the balance. The maintenance fees will go up, but your mortgage payment will stay the same.
Fees will be lower in a bigger building, but the number of units that are being leased can be quite high, sometimes over 50%. If there is a downturn in the market, you’ll be facing a lot of competition.
As well, try and find a unit where heat and hydro is not included – you want your tenant paying the bills so they can use as much or as little as they like and you’re not on the hook.
Next month, finding a good tenant and what you need to know about rent control. In the meantime, if you have any questions, please get in touch!