Toronto is growing rapidly as a city, which makes this the best time to invest in the real estate market in the city. To help you make the most of your investment in the real estate market in this city, here’s everything you need to know before you invest:

Leave emotions out of it

Emotions often cloud logical judgments, so you need to make sure that you are aware of your feelings about each property at all times. For example, you may have found an apartment that looks exactly like your grandma’s which makes you want to buy it, but if it’s located in a bad neighbourhood. You won’t be able to get anyone to rent it. Therefore, you need to base your decisions on research and calculations more than emotions and feelings.

You will have to pay around 20% down payment for any property you buy

This is the standard of the real estate market in Toronto, so if you can’t afford to pay 20% down payment, chances are, you can’t finance your mortgage for that property. It’s usually a good idea if you can afford to pay more than 20% up front. That will help to reduce the long term burden, which can be an issue in the long run.

Make sure that the rent can subsidize the mortgage

If the rent doesn’t cover at least half the mortgage cost, then it’s fair to say that it’s not a worthwhile investment. Therefore, you need to make sure that you’re always trying to bump up the value of the property so that you can enjoy more profits along the way while you’re paying off your mortgage.

The lenders will add 80% of the rent cost to your financial statement

When the lender is trying to determine how much mortgage you can afford, they will look at your income, debts, and credit scores. These are the three factors that determine your financial status. If you’re planning to rent the property out, they will factor in around 80% of the rental fees to your income, which means that you will be able to get a larger loan. However, you shouldn’t get complacent with your properties, as you still need to make sure that you keep up with the increased payment terms to ensure that your property doesn’t get foreclosed by the lender.

If your down payment is more than 20%, you may qualify for a 30-year amortization program 

This program will reduce the monthly payment you have to pay, but the lender will extend the payment term by several years. For example, if you’re paying off a $300,000 house with a 3% interest for 25 years, you will have to pay around $1,300 per month. With the 30-year amortization, your monthly mortgage will be reduced to approximately $1,200. The extra $100 will add up very quickly, which will help to make your financial situation more stable in the long-run.

There are four main ways to make money as an investor:

Monthly cash flow  

If your monthly mortgage and every additional cost is worth around $1,200 and the property gives you $1,500 every month, then you have $300 monthly cash flow. This is a simple calculation we use as an example since there is a lot more you can learn about cash flow.

Appreciation 

If you’ve bought your property at $200,000 and in 20 years, that value has increased to $400,000, that means that the value has appreciated 100% in 20 years. You need to look for properties that have the potential to increase in value in the future, as that will ensure that you can make a profit out of it one way or the other.

Equity Build-up

If the upfront cost of the property is $200,000, and you’re paid $1000 every month, that means that the equity will continue to build up for the property. For example, the initial $200,000 will be reduced to $188,000 by the end of the first year. This number will continue to drop the longer you rent the property out and once the mortgage is paid off, the rest you’re making is pure profit.

Property Improvements 

Many rental homeowners upgrade their homes to increase the value of their property. For example, if you pay $30,000 for renovation which will help you to make an extra $600 every month, that investment will pay for itself within 50 months. However, you need to talk to your realtor before you make this decision, as it may not always work out the way you plan.

If you’re looking to buy real estate in Toronto, get in touch with us today we’re happy to help you find a property that suits you.