Looking to make money in Durham Region’s real estate market? You aren’t alone. Historically, investors have richly profited from buying, renting, flipping and selling properties in Whitby / Oshawa / Durham Region.
THE BASICS OF INVESTING IN REAL ESTATE
Financing
Getting a mortgage for a second property isn’t as easy as borrowing for your primary residence – you’ll need at least 20% of the purchase price for a down payment, and only a portion of the income you get from rent will be considered in qualifying you for a mortgage.
Timing
Most real estate investments should have longer-term objectives. Because of the unpredictability of the real estate market, expecting to profit in a short period of time is risky.
Goals
What are your investment goals? There are three ways to make (or lose) money by investing in Toronto real estate:
- Cash flow – Cash flow is the difference between what you collect in rent and the expenses you pay out. Cash flow is affected by factors outside of the real estate market, for example, it depends on your downpayment and mortgage terms.
- Appreciation – When you a sell your investment property for more than you paid, that’s called appreciation.
- Equity (mortgage paydown) – When a tenant pays down your mortgage, you’re building equity. For example: you buy a property for $400,000 with an $80,000 downpayment and you apply the rent to the mortgage and rent it for 25 years.
Return on Investment (ROI)
Investors use different calculations and tools to calculate the returns on their real estate investments:
Cash flow is the net amount of cash moving in and out of an investment
Calculation: Income – operating expenses – financing costs
Capitalization Rate (cap rate) is the rate of return on a real estate investment property based on the income that the property is expected to generate. Operating Income / Purchase Price
Calculation: Operating Income / Purchase Price
Return on Investment (ROI) – a performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investment
OPTION 1: INVESTMENT CONDOS
Ever wonder who’s buying all the condos you see changing Whitby / Oshawa / Durham Region Real Estate landscape? Investors. Here’s why:
The Pros
- A good investment condo will break even (or be cash positive) with a 20% down payment (which you require for a mortgage anyway).
- Opportunity for both cash flow and appreciation in value over time
- The rental market is at an all-time low for vacancies, so finding a good tenant should be easy
- Generally less maintenance/repair work than being the landlord of a house
- Unique condos in good locations have historically appreciated more than the stock market
The Cons
- Lots of obligations and little flexibility due to the Residential Tenancies Act.
- Works best as a long-term strategy
OPTION 2: INCOME PROPERTIES
Income properties–houses that have self-contained apartments that are rented out–are HOT, HOT commodities in WHITBY / OSHAWA / DURHAM REGION.
The Pros
- Having a basement apartment that you can rent out just might make the difference between affording the home of your dreams and not. At current interest rates, $1,000 in rent can cover over $200,000 in mortgage!
- Historically, houses have appreciated faster than condos, so if you’re looking to make money when you sell, then an income property may be a safer bet.
- With a 20% down payment on a multi-residential house, you should be able to break even (or ideally be cash positive)
The Cons
- If you’re living in the other upstairs (or downstairs) apartment yourself, you’ll need to cope with the noises and smells of your tenant
- Landlord headaches: repairs, renovations, tenants that don’t pay their rent
- Having tenants in leases may make it harder to sell your home when the time comes
OPTION 3: FLIPPING
While it isn’t as popular as it was a few years ago, flipping houses (in other words, buying a rundown house and renovating it for profit in under a year) happens every day in DURHAM REGION. It isn’t for the faint of heart – but it can be hugely profitable.
The Pros
- A proper quality flip in a good neighbourhood will be in high demand (many of today’s buyers want the fully done-up house)
- Cash! There are certainly lots of examples of houses bought for $400,000, renovated for $50,000 and sold for $600,000
The Cons
- Renovations always take longer and cost more than you expected. With a flip, every dollar spent and every month where you have to pay a mortgage counts.
- No matter what HGTV tries to tell us, flipping for profit isn’t easy – it takes a lot of time and can be a risky venture for someone who isn’t a contractor or tradesperson
If you’re considering buying a home to flip it, make sure you’re working with a REALTOR, who knows the game and can make sure you buy the right property, put the right amount of money into it for the neighbourhood and sell it at the right time. Contact James Bryant or Patrick Bryant to discuss all of your real estate needs in Durham Region!
OPTION 4: NEW CONSTRUCTION
This used to be the number one way investors made money in Durham Region’s real estate market – buying homes during the pre-construction phase and selling them when they were built.
The Pros
- Prime choice of styles and location, as you aren’t at the mercy of what happens to be on the market
The Cons
- Currently, it’s cheaper to buy a resale home
- Uncertainties in the shorter-term market mean that your new construction could be worth less than you’ve paid for it by the time you take possession
