08.26.2022 | Buying A Home

Should You Invest In An Income Property Now?

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The last few years haven’t been easy on anyone trying to break into the real estate market, either as a homeowner or an investor. Values are at an all-time high, except back in February, when the average price of a house in Toronto peaked at $1,299,894. 

Now, prices have dropped slightly, but interest rates are up. The higher cost of borrowing can offset any benefits of lower prices. Add record inflation to the mix, and you can see why some people are hesitating to make a move. However, with careful planning and analysis, real estate remains one of the most secure and profitable investment vehicles available.

Let’s take a look at some of the ways you can break into the market.

Buy And Hold

For most people, especially first-time buyers, buying a property for the long term is the best way to invest in real estate. Currently, prices have dropped from their pandemic peak, but housing values always tend to rise in the long term.

Buying a home as your primary residence allows you to start building your equity now to take advantage of other real estate opportunities later. And even if your home doesn’t have a built-in secondary suite, you can still get creative to generate income from your investment.

Buying a home can feel daunting, whether you’re a seasoned pro or it’s your first purchase. Here are some resources to help you:

Rent Space In Your Existing Home

Living with a roommate or renting out a room in your house are excellent ways to make your purchase more accessible. You can generate a stream of passive income that covers most, if not all, of your mortgage payments, allowing you to build up equity faster.

Once you have paid down part of your mortgage, you’ll have more investment options. Of course, living with a roommate isn’t always easy, especially if you’re a nighthawk and they’re an early bird. It’s imperative that you choose someone who you trust to pay on time and who will respect your home.

Buy A Home With A Legal Suite

You may be surprised at how many people in Toronto choose to buy a home with an existing secondary suite. Yes, it costs more upfront. However, the monthly income can often make an investment property easier to afford than a single-family home. 

A turn-key package means there is no need for expensive and disruptive renovations because everything is good to go from day one. 

A basement apartment with a separate entrance provides far more privacy and independence than sharing your living space, which often results in long-term rentals.  

Of course, you still want to choose your tenants carefully to ensure you will get along and that they will pay their rent on time without you having to chase them down. 

Extensive background checks and asking for a letter of reference can help you find the right fit.

Partner Up To Purchase

Does the thought of saving enough for a down payment or qualifying for financing seem impossible? Toronto’s high prices, rising interest rates and tighter bank regulations can make buying your first income-property difficult. One way to overcome these challenges and achieve your dream is to go in with a partner or a group of investors. 

A partnership can help you build your equity quickly by getting into the market now instead of later, when prices will inevitably rise again. Buying as a team doesn’t just make the purchase more affordable. It means there is less risk for everyone if the market goes into a temporary lull.

The downside of a team purchase is you will all have to agree on decisions about the property, like whether to renovate or when it’s time to sell. As always, you should only enter the market with a partner you trust completely.

Build A Secondary Suite

If you own a home currently, you don’t have to invest in a separate property to start earning income. You can convert your basement into a legal apartment or even build a garden suite on the property. 

Building a legal apartment will take substantial time and investment but requires far less capital than buying a new home. In addition, a house with income potential will have a greater resale value than one without.

When buying a home, location is everything! Here are some amenities you’ll want to know about before taking the plunge:

Purchase A Separate Investment Property

Do you currently own a home? If so, you might consider tapping into your equity to purchase an entirely separate place as an income property. There are several advantages to owning multiple homes.

  • Your equity grows twice as fast as both properties increase in value over time.
  • You’ll have a significant income opportunity. Rental units are in high demand in Toronto, so you’ll likely have no trouble finding a tenant.
  • Having a second home provides you with more retirement options. You can sell one property and live in the other. Or sell both properties and head south for a warmer climate. Greater equity will open many doors for you in the future!

Before investing in a second property, however, it pays to do your research. You’ll want to know what people are willing to pay for rent in your area to ensure your investment will have enough cash flow to make it worthwhile.

Current homeowners can use their equity to find creative financing options to fund their investment property. You aren’t limited to the major banks and can shop around for the lowest rates. You can refinance your existing home for the down payment of the new property and use the rental income towards the monthly mortgage. A home equity loan or line of credit can help you fund your investment at a lower interest rate than a traditional mortgage. We recommend talking to your homeowner’s lender or mortgage broker for advice.

Unlike other risky ventures, investing in real estate can provide a secure, profitable future and help create generational wealth for your children and grandchildren. 

Do you want to talk more about what kind of investment options are available to you? Find out more about our 6-step buying process right here.


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