If you’re thinking of buying rental property in Toronto, there are many things to consider. Buying a rental property in Canada can be a great way to earn passive income, but it’s important to consider the costs and responsibilities of being an owner-occupier before jumping into the market. So what are some tips about buying rental properties in Toronto?
Some Tips When Buying Rental Property in Canada
How to buy a rental property in Toronto? Rental property can be a great investment for many people, as long as you have the right strategy. If you’re looking to buy a rental property in Canada, Toronto is an excellent place to start because of its wealth of properties at various price points.
Here are my top tips when buying a rental house in Toronto:
Consider the Location
Buying a rental property in Ontario can be hard. There are many factors to take into account, but the location is the most important one when buying an investment property in Toronto. For your house to be in demand with tenants, you need to locate a community that is reputable and reliable. Look for communities close to public amenities (like grocery stores and other retail), and transportation options (like buses), and ensure that any utilities are available (such as water, electricity, and internet). Also, consider the mix of people living in the area — you don’t want it to be all young families with kids if you’re targeting middle-aged singles with dogs who like going on long walks every morning.
Location is key since you want to make sure that your potential tenants will be able to get there easily, but also that they will feel safe and comfortable while staying there.
Do Thorough Research on the Neighbourhood
Whether this means looking at comparable sales data or speaking with local realtors, do your due diligence before making any decisions about where exactly to invest. For example, find out which neighbourhoods have good schools and amenities nearby — this will make it easier for you to rent out your property. Find out whether or not there are any restrictions on pets living in the area where the property is located — not all neighbourhoods allow pets. You don’t want them moving out because they can’t have their dogs with them anymore.
Look up crime rates in the area before deciding where to buy a rental property, since you don’t want your tenant getting robbed. Find out more about crime rates in different areas of Toronto to know what kind of neighbourhood would be best for you.
Look at other properties that have been rented out in your area and try to determine what will make yours stand out. Also, consider whether or not any zoning restrictions might affect your ability to rent out your property as desired.
Know Your Budget
You’ll need to have enough money to cover your down payment, closing costs, and the first year’s worth of property taxes. You should also have enough money to cover any renovations you plan to do, as well as any maintenance fees or property management fees that will come up during your initial investment period.
With that in mind, decide how much money you can spend on your investment property in Toronto (e.g. down payment, closing costs, etc.) and what interest rate you’re willing to pay. If the thought of managing tenants makes you nervous or if you don’t have enough time on your hands, it might be worth looking into some other options (like buying an existing house). If you want to handle rental income and expenses, you need to have proper property rental bookkeeping in place.
Consider Tax Implications
Before you start the process of buying rental property in Ontario, you must understand the tax implications of all the property types. If you’re planning on holding onto your rental investment for several years and then selling it, then understanding how your taxes work will be even more important as they can make a big difference in how much money comes out of your pocket at the end of each year. When buying Toronto rental properties, consider three taxes — capital gains taxes, land transfer taxes, and income tax on the rental income.
Look for a Property Management Company
If you’re planning on buying rental property in Ontario, you must get a property management company to handle the day-to-day operations. Property management companies know all of the ins and outs of renting out a home or apartment and can help you find tenants who will pay rent on time and maintain the property well.
Go for the Long Lease
When you’re looking for a good investment, it’s tempting to think that the more units you have, the better. But this isn’t always the case. When buying rental property in Toronto, it’s important to keep in mind what your goals are for buying said rental property. What’s going to be most profitable? You want a stable income from your investment — and that can be determined by how long of a lease you go with.
Longer leases mean less risk and more stability because tenants are less likely to move out mid-lease or cause damage to their apartments. A longer-term tenant also means more predictable rent payments throughout the year and possibly even an increase in rent if they renew their lease (which is often easier than finding new tenants).
Have a Higher Down Payment
You’ll want to put down as much money as possible when you purchase a rental property in Toronto. The more you put down, the less you borrow and the less interest you pay. The less interest you pay, the more profit you make. If your down payment is 20% or higher on a home purchase, lenders will give you a lower interest rate than if your down payment was 5% or lower.
That’s why it’s important to have at least a 20% down payment when buying rental properties in Toronto.
Pros of Buying a Rental Property in Toronto
Here are the advantages of buying Toronto rental houses:
- You’ll benefit from an appreciation of the property’s value over time, especially if you buy it near downtown Toronto — which is where most new residents want to live.
- With rent so high in Toronto, having a second source of income will give you more financial flexibility when it comes to making big purchases or saving for retirement.
- You can build equity. You may be able to get a loan on your rental property at a lower interest rate than you would get if you were buying a primary residence, which means that over time, your equity will increase faster than if you were renting out an apartment instead of owning one outright.
Cons Of Buying a Rental Property in Toronto
At the end of the day, there are some downsides to buying Toronto rental properties:
- The location could be bad when choosing a rental house in Toronto. If you buy a property that isn’t in a good location, then you may end up with few tenants and/or high vacancy rates. This could cause you to lose money fast because of lost rent and maintenance costs.
- It can be difficult to find tenants who will pay rent on time each month without any issues arising during their tenancy period (e.g. late payments; damage caused by tenants).
- Your taxes may go up as well as your insurance costs because of all the extra responsibilities involved with being a landlord.
- Rental properties have higher maintenance costs than owner-occupied homes.
- And evicting a tenant can be a tiresome and difficult process in Ontario and you need to ensure that the reasons for eviction align with the Residential Tenancies Act.
FAQ for Rental Property Buying
- What are rental properties? Rental properties are homes that are owned by a landlord who rents them out to tenants. The landlord makes money by renting out the home and collecting rent from the tenant each month.
- How do you buy a rental property? It’s best to find real estate agents, as they will know all about the process and what’s involved. They will also be able to help you find the perfect property for your needs, whether that’s near public transit or close to work. Don’t forget to opt for mortgage brokers as well to help you find mortgages that can give financial support.
- Should I buy a rental property or invest in stocks? It depends on your situation and what you’re looking for in terms of investment opportunities. If you’re interested in real estate, then buying a rental property may be the best option for you because it can provide more consistent returns than stocks over time. But if you are more interested in investing in something more liquid and accessible, then stocks may be better suited for your needs. Also there are leveraged assets when you borrow money to buy more assets in the hope of increasing your return. With stocks there are options for leveraged assets as well where they give you 2-3 or even 4-1 but those could have margin calls and thus have more risks attached to them.
- Can I buy a rental property with no money down? You need to have at least a 20% down payment.
As a real estate investor in Toronto, I’ve had the chance to buy and sell many properties. While I’m not going to say that it’s easy, it’s possible to make money off of renting out your property if you know what you’re doing. Here are some tips on how to buy a rental property in Toronto. Keep in mind that our whole team is here to help you with any property management issues. So, contact us today!