From Homeowner to Investor | The Erica Reddy Team

What comes to mind when you think of a real estate investor? Some people might imagine a high-powered business executive with untold millions at their disposal, buying and selling properties on a whim. The reality is much more straightforward. Many real estate investors in Toronto are regular people who saw an opportunity early. Could this be you? If you own the house or condo you’re currently living in, you’re more than halfway there to becoming a successful investor yourself. All that’s missing is the expert advice that can take you to the next step.

Here are a few reasons to consider using your current property to help you enter the investment market.

The Advantage that Equity Brings

How does holding one property help you own multiple properties? Let’s talk about equity for a moment. Unlike paying rent, which is money that is gone forever, part of your mortgage payment goes back into your net worth. Every amount you pay towards the principal of your loan builds your equity. Plus, your wealth grows each year automatically as your house appreciates in value. With the way real estate prices have exploded in the past few years, you could be sitting on a wealth of possibilities. The easiest way to break into the investment market for homeowners is to keep your existing property when you decide to move on.

Very few people take this approach. The typical path is to sell your home and then buy a new property. However, there are a lot of advantages to holding on to your current home when you move.

You can generate monthly income. With the right tenants, that’s automatic money coming in every month without trading your time or effort.
You can continue to take advantage of growing equity. Real estate values can drop in the short term but always rise over time.
You have a valuable asset that you can return to if you choose or sell in the future.

It’s a good time to buy in Toronto! Check out our recent posts for the latest updates:

The Pros and Cons of Borrowing Against Equity

As a current homeowner, you’ll find it much easier to obtain financing than someone starting out. With your house as collateral, the bank is more likely to approve your loan and provide you with a higher amount. Best of all, home equity loans and lines of credit typically have a much lower interest rate. Your investment property can be more affordable than a new purchase!

Of course, borrowing against equity does come with some risk. If you default on the loan, you could lose one of your properties.

However, Toronto currently has a housing shortage, with more people looking to rent than there are vacancies. Your risk of not being able to find a tenant is extremely low.

The Right Tenant is Paramount to Your Success

Stories of nightmare tenants are what stop many people from becoming investors. The good news is that recent changes in technology have made it easier to find and vet tenants. Currently, the market favours landlords. You can advertise online, usually for free, and get dozens of responses. Your real estate agent may also work in the rental market and can often recommend high-quality tenants. With many hopefuls in Toronto looking to rent, you will have your pick of the best.

Everyone who applies for your unit should have proof of income and be able to pass a background check. You can even go deeper by scheduling an interview with your top contenders. Questions to ask include:

Are you currently renting, and for how long?
Why are you looking to move now?
What kind of work do you do?
How long have you worked with your employer?
Will anyone else be living with you?
Do you have pets, or do you plan to get them?
How many parking spots do you need?
Have you ever been evicted, and if so, why?

Some things, like the employer’s name and place of current residence, are easy to verify. To a large extent, you may have to rely on your instincts, which is a great reason to get everything in writing. Your goal is to find a cooperative tenant who will stay in your unit for the long term.

What Neighbourhood is Right for Your New Home? Here are some community posts that can help you decide:

Preparing Your Home for the Rental Market

How should you decorate your home to appeal to tenants? Luckily, preparing a home to rent is nowhere near as involved as getting ready to sell. A tenant rarely takes care of a property to the extent that an owner would, so it doesn’t have to be immaculate. Beyond meeting essential safety requirements, a fresh coat of paint and a few minor repairs will often do the trick.

Before the tenant moves in, walk through the home together to perform a detailed move-in inspection report. This protects both of you if the property becomes damaged and helps determine who will be responsible for the cost of repairs. Some wear and tear is to be expected, but the home should be in a similar condition when the tenant moves out.

Your New Life as an Investor

Once your tenant settles in, you may decide to continue to maintain the property yourself. You will get the occasional phone call when something needs to be fixed or maintained. That is inevitable. A working relationship with a local real estate professional will often give you access to all the tradespeople and service providers you will ever need.

You may also decide on a more hands-off approach. In that case, a property manager can handle everything for you, including collecting rent payments, making repairs, and settling disputes.

Soon, you may find yourself in love with the investors’ lifestyle. Your possible next steps could be setting up a secondary rental suite in your new home or buying another income property altogether.

Your equity will grow fast when you hold multiple properties, opening many doors for your future.

Are you looking for an investment opportunity in Toronto? We would love to help! Our buyer clients save an average of 6% on the price of a property. If you have questions, book a free meeting with us right here.

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