| Investing

Although owning multiple properties in Toronto can provide a lucrative passive income, there’s a lot you need to know before deciding this is the investment strategy for you.

Here we look at the ins and outs of owning more than one Toronto property, as the perfect “primer” for your real estate investment ventures.

Check out our at-a-glance Investment Property FAQs here.

The Types of Typical Real Estate Investments in Toronto

There are a few types of real estate investments you might consider, including:

Flipping

Buying a fixer upper, investing time and money to renovate, and then selling for a profit can see big payoffs when done right. It also comes with the following risks:

  • You have to cover the mortgage AND the costs of renovating for several months
  • You might simply break even
  • You have to continue to carry the mortgage until you sell, eating into your profits
  • There’s the risk of selling at a loss if you overinvest in the wrong upgrades or the house sits on the market too long

BRRRR (Buy, Renovate, Rent, Refinance, Repeat)

This is a major time consumer, but when done properly can create a nice little profit machine. The main problems here include:

  • Ensuring you pay the right price for the property
  • Timing it right to avoid carrying the mortgage too long during renos
  • Finding the right tenant(s) to help cover your mortgage so you can refinance and start the process all over again

Landlord

This is a more straightforward approach, where your tenants pay your mortgage, and you can then either sell to turn a profit or use your equity to invest in other properties. You can also live in one of your multiunit residences to cover some of your living expenses. The risks:

  • Not finding a tenant
  • Tenant churn
  • High maintenance costs for older homes and units
  • Tenants not paying their rent
  • Eviction challenges for bad tenants

New build

Investing in a newly built home and then selling it once it’s complete tends to be low risk and takes zero effort. You’re almost certain to at least break even and might make a small profit if you decide to sell. You can also leverage the high demand rental market by renting instead of selling. The downside:

  • You’ll have to pay GST on the property
  • The construction schedule can run over by months or even years, extending your wait time to see a profit
  • The builder can back out of the build keeping your downpayment for months or even years

Understanding the Mortgage and Down Payment Rules

Zoning laws impact the type of mortgage and down payment required. Single-family homes, and buildings with four units or less are considered residential, while anything with five or more units is commercial. Residential investment properties require 20% to 25% down payments, with commercial properties often requiring more. However, investing in a multiunit rental property where you intend to live can reduce the down payment required depending on the price. It also allows you to qualify for mortgage default insurance and in turn help you qualify for better interest rates.

Learn more about mortgage rules and tips with these posts next:

Being a Landlord in Toronto

Toronto landlords aren’t always living the dream. You have to be realistic about how rental properties impact not just your earning potential, but also your lifestyle! Yes, with high rents in Toronto, you’re likely to produce enough cash flow to cover your mortgage and expenses. It’s very unlikely you’ll ever lose money unless you run into a tenant not paying the rent situation. Most property values in Toronto continue to rise, even in slower markets. As a result, you can continue to grow your real estate “empire” using equity for down payments.

However, there are increasingly more risks of rent strikes with more tenants rebelling against high rents. It’s also becoming harder and harder to collect back rent due to a years-long backlog in the tenant/landlord tribunal system.

It takes time and money to find reliable tenants and can be even harder keeping them. So, you have to ensure you’re compliant with the landlord and tenant act to keep tenants happy and maintain that income. Also, depending on your finances, you can always hire a reputable property manager to take care of all of this “landlordy” stuff for you.

Lastly, eviction is tough even when tenants aren’t meeting their financial obligations. You have to follow the eviction rules in accordance with the Residential Tenancies Act and as mentioned above, there are growing challenges with backlogs in tenant/landlord complaint cases.

If you’re okay with all of this, then being a landlord in Toronto isn’t so bad.

Get the full downlow on being a Toronto landlord here.

Understanding Investment Properties Tax-Wise

Don’t forget the tax implications of owning multiple properties in Toronto:

  • Owner occupied properties: If you own multiple “owner-occupied” properties such as a cottage, a condo you live in a few days a week, or a multi-unit residential building where you occupy one of the units but don’t designate it as your principal home, you have to pay capital gains taxes on 50% of the profits when you sell. Taxes range between 27% for capital gains below $250,000 up to 66.7% for capital gains above $250,000.
  • Investment properties: Any property you do not live in is considered an “investment” property and the same capital gains taxes apply when you sell. For rental properties, you also have to pay income taxes for the rent collected, although you can write off many of the expenses related to maintaining and renting the property.
  • Vacant home tax: The Vacant Home Tax is charged at 1% of the Current Value Assessment (CVA) of a Toronto residence declared, deemed, or determined to be vacant for more than six months during the previous year.

Learn more about the various implications of selling an income property here:

Legal Implications of Owning Multiple Properties

Be sure to confirm fire safety regulations, property standards, and zoning bylaws in your municipality to avoid fines and penalties, not to mention possible lawsuits related to any faulty upgrades or renovations you make! You also need to ensure you understand the Residential Tenancies Act to avoid breaking landlord/tenant laws and regulations.

The Bottom Line

Investing in multiple properties is a tempting prospect that requires market insights to help reduce risks. Working with the right real estate team can ensure you make smart decisions and find the best strategy for you.

Want to learn more about owning multiple properties in Toronto? The Christine Cowern Team can help. Give us a call at 416.291.7372 or email us at hello@christinecowern.com for guidance. We’d love to work with you!