Dispelling Myths about Toronto Real Estate Investing
Real Estate Investing isn't about flipping property or making fast cash. And it's not about buying condos from plans, so that you can sell them for a tidy profit before they're built. That's speculating.
Real Estate investing is about:
- buying an asset - in our case a house or multi-unit property
- that is highly leveraged - which means we use only a small amount of our own money and borrow the rest
- that pays a high return on your cash investment - so if we bought a 500K property but used only 50K of our own money we would look for a return on investment for the 50K, not the 500K
- that grows in value, typically at a rate greater than inflation
- with 'tax-deferred' status (no tax is paid on growth, tax is only paid when sold, or upon death)
- which is eventually taxed at the lowest rate (real estate investments are subject to 'capital gains tax' which today is only 50% of the normal tax rate)
- that repays the debt using other people's money (the tenants) over a reasonable period of time
- then gives you debt-free ownership of the asset
- which provides a perpetual income (once the mortgage is paid out, the rent provides income instead of debt repayment)
- and can be refinanced to create other investments in the future, if you want
If Real Estate Investing works so well, why isn't everybody doing this?
Because it's not that simple. Some say that it's nearly impossible in Toronto! That's because the Toronto rents have not kept up with Toronto Real Estate values. The first hurdle in picking the right property is making sure that the rents cover the mortgage payments and operating costs - at the very least. Most properties don't. Most novice real estate investors are stopped right here.
How do you get past the initial hurdles & become a successful Real Estate Investor?
This is a good time to read a post and watch a short video of an interview I did with Cindy Wennerstrom, one of the few people who's succeeding at Toronto Real Estate Investing today. Cindy tells you about her 'formula' for a successful Real Estate Investment and what you have to do to create it.
Here's where my opinion on Real Estate Investing differs from Wennerstrom's
I might consider buying an investment property that just breaks even, doesn't have a buffer for rising mortgage rates and may occasionally operate in the red, for the first few years. But now I have a financial buffer in case something goes wrong. Also, I've been a Toronto Real Estate Investor for over 30 years and I've bought and sold several investment properties already. The rents didn't always cover expenses or provide a buffer for rising mortgage costs. But in the end, the investments were always profitable.
If you're just starting out, you should probably be more security-conscious.
How to get started with Toronto Real Estate Investing
Send me a note with a specific question and I'll do my best to answer it. Or get in touch so we can get together for a coffee. I'll explain the 'minimum requirements' for getting started as a Real Estate Investor in person.
In the interest of full disclosure, I'm a Toronto Real Estate Agent, not a Financial Planner. I can't give advice on what you should do with your money or what investments provide the best returns. But if you've decided that Real Estate Investing is what you'd like to do, I have decades of experience that I'm willing to share with you.