Condo Investment Strategies in the Downtown Core of Toronto
Quick Question: How have your RRSPs, Stocks and Mutual Funds been doing to prepare you for retirement? Many people in the Toronto area typically not fully prepared for their retirement years and this is where Condo investing can help out.
If your financial investments haven’t been generating the returns you expected and your friends who bought a condo a few years back are in disbelief at the returns they’ve earned just by trading their rent cheques for mortgage payments, let’s talk Downtown Toronto Condo investment tips.
Below are some basic principles for success when buying a condo investment property in the downtown Toronto area.
Downtown Toronto Condo Investment Strategy Tip #1 - Understand Your Goals
The type of product you invest in will depend on your goals as an investor. Are you investing for equity gains or are you looking for an investment that generates cash flow?
So are you looking for extra income each month by renting a condo out or are you looking long-term where you can purchase a condo now and sell say 10 or more years from now and have your condo earn substantial equity.
Downtown Toronto Condo Investment Strategy Tip #2 - Know Your Budget and Closing Costs
This may seem obvious, but when we say know your budget, we mean really break down what you have and what you can afford to carry. This will ultimately influence your condo investment strategy and the type of condo investment property you’re in the market for.
How much cash do you have for a down payment? For instance, if you have between $30,000 to $50,000, you’re a better candidate for a resale condo investment property over a pre-construction condo, that is, if your investment will serve as your principal residence.
If you will be occupying your condo investment, you are allowed to put as little as 5% down, depending on the purchase price. If you’re buying a secondary property as an investment, you will need to put down at least 20%.
When investing in a pre-construction condo in Toronto, you will need 15% down typically within the first year.
You also need to budget for closing expenses. These include Land Transfer Tax, legal fees and, on pre-construction condo investments only, development charges. Also, if you don’t plan to live in your pre-construction condo, as a landlord renting the property you’ll be required to pay HST (capped at $24,000). As an investor though you are able to file for a full HST rebate on their pre-construction investment provided they have a one year lease in place. You’ll still need that extra $24K at closing but will have three to four years to save for it. You’ll want to ensure your finances are in order as you sort out your condo investment strategy.
Downtown Toronto Condo Investment Strategy Tip #3 - Buy In Gentrifying Neighbourhoods
If your condo investment strategy is all about equity gains, look to downtown Toronto neighbourhoods that are on the rise. If you can invest in areas when prices are low, you’ll reap the benefits in the years to come.
When it comes to equity gains, the biggest wins to be had are in pre-construction properties in up-and-coming neighbourhoods. If you can invest in areas when prices are low, you’ll reap the benefits in years to come as the area becomes more desirable.
Consider Current and Future Transit in Your Condo Investment Strategy
One fail-safe is looking for new condo developments along subway lines. The same goes for future transit lines. A good example of this phenomenon is the gentrification surrounding the subway line east of Broadview along the Danforth. As you move eastbound, you can’t help but notice a dramatic shift in the types of establishments taking up residence along this corridor, which signals good news for savvy investors looking to maximize profit on their condo investment.
Don’t forget about the areas surrounding established neighbourhoods. As those neighbourhoods grow in popularity, gentrification and new condo supply starts being added adjacent to these high-value neighbourhoods.
Downtown Toronto Condo Investment Strategy Tip #4 - Think Long-Term
Investing with the intention of holding your condo investment property long-term should be fundamental to your condo investment strategy. The longer you hold your investment property, the greater your equity gains will be.
With the high year-over-year price growth that the Toronto condo market yields, your equity gains are the biggest driver of profitability which is why investing in Toronto’s condo market is so lucrative.
As your investment’s market value goes up and your mortgage goes down, you’re able to leverage your equity into other pre-construction condos and start building a real estate portfolio that will make for a very cozy retirement.
Downtown Toronto Condo Investment Strategy Tip #5 - Understand the Tax Implications
Knowing how your investment will affect your taxes and the amount you owe can make all the difference when purchasing property.
When you sell your investment property, you are required to pay Capital Gains Tax. This means that 50 percent of your net profit will become taxable income. You are entitled to deduct expenses incurred during the investment from these gains (like interest on a loan and cash-flow losses).
As we mentioned earlier, when investing in a pre-construction condo you’ll need to pay HST to a maximum of $24,000 when the building registers with the city (typically four years after your initial purchase). Your lawyer can file for a full HST rebate, refunded approximately four to six weeks later, provided you have a one year lease in place.
If you do not rent out your property for the minimum one year, you are not eligible for the HST rebate.