Whether you’re looking to make your first steps onto the real estate ladder or you’re a seasoned veteran looking to secure your next property, here are seven things you need to be aware of when considering investing in Ontario real estate.
1. Most lenders consider 80 percent of real income when working out the amount you can afford
When banks or lenders such as Altrua Financial assess the mortgage they want to offer you, they take into account your credit score, your debts, and your income. If you’re investing in an income property, they’ll include 80 per cent of the projected income from rent to your total income, so that you’ll be eligible for a bigger mortgage. Bear in mind that some lenders won’t take rental from illegal apartments into account at all.
2. The bank doesn’t count a home that you live in as an investment property
If the home is your primary address, then the mortgage numbers can’t be run as an investment property from the perspective of the bank. If an apartment’s rent potential can be backed up by the appraiser from the bank or if leases are in place, 80 percent of that income may be used to minimize risk, but that’s all.
3. Toronto’s short-term rental market is pretty much done
Renting out a property for a few days or weeks was a great way of making money for a long time. However, the Toronto short-term rental market is no longer a thing, for serious investors at least.
4. Your down payment will likely be at least 20 per cent
If your intended purchase isn’t your primary residence, then the bank will need a larger down payment. In the majority of cases, that down payment will be 20 percent.
5. The best properties for cash flow are those that appreciate slower than the norm
When you choose an investment property, you should pay some serious attention to what you’re trying to achieve. You need to decide on your priority: long-term value or monthly cash flow.
6. If your down payment is over 20 per cent, you’ll likely be eligible for a 30-year mortgage amortization
This will ensure your mortgage payments remain low (your mortgage interest can also be written off against the income from your rent when it comes to doing your taxes).
7. Prioritise math over emotions
While bamboo floors and granite counters provide an awesome look, you also need to consider the value they add to the monthly rent. When it comes to real estate investing, numbers matter, and those numbers aren’t just about price. You also need to look at condo-related fees, the cost of taxes, the kind of maintenance you can expect, and the kind of rent you can expect. An experienced investments agent can guide you to those that are more profitable while encouraging to avoid those that might look great, but that won’t give you the returns you want.