Real estate is still one of the safest investments one can make as the risk is lower than when investing in other more volatile markets, like stock or bonds. And while this should be a form of encouragement to invest in real estate, especially when investing in a market like Toronto. beginner investors should always be aware of the multiple risks that are involved in the entire process and how long it will take to generate cash flow. Not every property has the same potential. A property needs to be selected carefully and considered from every angle.
Perhaps, all Toronto investors dream of luxurious real estate in prime locations and renting them out for thousands of dollars, but as a first-time investor, you probably do not have the budget. You need to work with what you have got and find Toronto listings that are right for you. Setting your priorities right, in line with the budget, is what will bring you closer to generate returns. Here is what to do to get it done right.
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Know your financial limits
As most of the investors, you probably already have a primary residence and you are looking to add another one to your title to generate profit. One of the first things to know is that a mortgage on a second property is treated differently than when buying your first home. Second-time homebuyers need to pay the 20% down payment right away or otherwise, they cannot get the CHMC insurance on the home. This often comes as a shock to beginner investors in Toronto who do not have the savings to cover the down payment. Information is key, so explore all mortgage options to find out how much you qualify for, the interest rate that applies and the amount of the down payment to find out how to handle the situation and still not lose sight of your goal.
Locations cater to a certain audience, make sure you know yours
?Do your homework and research the market or talk to a realtor before you set your heart on a property. For example, buying a one-bedroom property in a family suburb will be hard to rent out as families usually go for bigger properties. If you are targeting internationals, students, younger renters, a one-bedroom in Downtown Toronto or an up and coming Toronto neighbourhood would be the best choices. To put it simply, to get back the invested money, make sure to study the areas, the residents and what kind of rentals are preferred at each location.
Have long-term goals
You may not be able to afford the busiest and most popular locations in Toronto, but you can identify areas that are about to appreciate in the coming years. Investigate all up and coming neighborhoods where prices are still affordable and their special features. Look at the properties, as well as amenities, population increase by year, property appreciation in the past several years and what attracts new residents. This will help you make educated guesses and reduce risky investment behavior.
Do the math
As a Toronto investor, you need to think about profitability. Do your math and make sure the property will pay itself back in a reasonable timeframe. Make sure your annual net profit exceeds (by a few percent, at least) what the property costs you (in mortgage, maintenance, and taxes). Only then will you know that your first property investment was a success. If you are interested in finding a second property in Toronto or the GTA and need financial and real estate advice, contact real estate expert Alfred Martinelli here.