If you’re thinking about buying a piece of Toronto real estate as an investment property, market conditions are definitely in your favour. While the resale housing market has seen a tremendous amount of activity from first-time buyers in the past year, it’s also a perfect time for existing homeowners to invest in secondary residential properties.

With record-low interest rates and significantly lower prices it’s hard to go wrong – unless, of course you lack the financial means to make the investment. After all, you have to be ready to meet all the obligations that come with owning more than your principal property. For instance, keep in mind that if you intend to rent out the second property, you’ll also have to be prepared to deal with tenants and handle maintenance costs.

Leverage

Secondary home ownership is an attractive investment option because it gives you even more leverage than you have with your principal residence. Leverage is when a relatively small amount of your money controls a much larger asset – like a property.

The more leveraged you are, the greater the financial return on your down payment becomes if the value of your property increases. There are very few other investments which can be purchased with such a small percentage of your own money.

Lets Talk Numbers…

For instance, let’s say you acquire a second property for $100,000, with a $15,000 down payment, and during the first year that you own it, the property increases by a value of three per cent for a $3,000 gain. As a result, the return on your down payment of $15,000 is 20 per cent – $3,000 divided by $15,000.

By comparison, let’s say you were to buy a term investment of $100,000 (in cash) for one year and it increased by $8,000 over the course of the first year. Since it cost you $100,000 in cash to buy it, the return on your investment is only eight per cent before taxes. Obviously, leveraging is a powerful way to make your money work for you.

Getting Financing

You should be aware that many lenders place non-owner occupied deals in the high-risk categoryand it’s not that unusual to find lenders who will not finance rental units at all – or those who will only finance them if they are insured.

Obviously, lenders will want to know whether the property will carry itself. (Is there sufficient rent to cover the mortgage payment?)

Don’t make the mistake of assuming that a rental income of $500 per month will carry a mortgage payment of $500 per month. Only a portion of the rent is used to pay the mortgage; the remainder must cover taxes, maintenance, vacancy, bad debt and expenses.

(Many inexperienced purchasers think that owning rental properties will allow them to “get rich quickly” and when this does not happen, the owner becomes disillusioned and loses interest in the property.)

Costs

You should also be aware that the cost of obtaining a mortgage (for legal and appraisal fees) on a non-owner occupied property can be higher than the cost of obtaining a mortgage on an owner-occupied property, when more than one unit – such as a duplex or triplex is involved. Interest rates charged on rental properties might also be higher because some lenders view these properties as being a higher risk.

As mentioned above, the main responsibility of having a second property is being able to carry it financially. And if you’re like most people, you’ll probably have to rent it to someone as a result.

This is also a great deal of responsibility because you will have to maintain the property in addition to your own principal residence, and you’ll be responsible for finding tenants who you trust and feel comfortable with.

Some parents with grown children ready to go off to university or college choose to purchase secondary properties for their offspring to live in while they attend school. This gives them an excellent investment and they are assured that the occupants will take good care of the home.

If you’d like more information about purchasing a second property, contact us, Semone Duerr and Jojo Plachta, at 416—699-9292 or email us at homes@MyDistilleryDistrict.com.

Semone and Jojo have this stunning, new Two Bedroom, Two Bathroom Condo available for rent. You can move in December 11, just in time to celebrate the holidays in your new digs.  See our listing for more photos and info!

Located In The Heart Of The Distillery District!!! Breathtaking Views In This 758 Sq Ft Corner Unit With Floor To Ceiling Windows, Granite Kitchen Countertop, Stainless Steel Appliances, Engineered Wood Flooring Through-Out, Large Balcony!

Extras: Stainless Steel Fridge, Self-Cleaning Oven, Dishwasher, Microwave, Washer & Dryer. Heat and water included.
Check out these Extras -

• Concierge
• Exercise Room
• Guest Suites
• Outdoor Pool
• Party/Meeting Room

Provide Employment Letter & Credit Check. First & Last Required. $1950/month.

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Prices in June and July, 09 were the highest in those months for the last three years. With low inventory and fewer new listings coming on the market, this trend is expected to continue. Since the Bank of Canada guaranteed rates until next year housing affordability is still good and this is a good time to start looking for your new home.

America’s housing market may be bottoming. New home starts and sales were up in June. Prices rose during the last three months for the first time in three years. Prices have plunged 30%, a handful of major markets now look affordable, and all of them are closer to sane.

Table 1 shows the rapid increase in house prices since 1987. Yale economist Robert Shiller studied house prices from 1890 to 2004 and found they outpaced inflation by just 0.4 percentage points a year. Until the Federal Reserve reduced interest rates and unleashed a speculative bubble. With the drop in prices prices are returning to where they would have been without the bubble. For the two lines to rejoin, house prices don’t necessarily have to fall further. They could flatten for a couple of years and let inflation catch up. (Of course, they could also overcorrect.)
House buyers  care about whether they can afford their mortgage payments, and if buying is a better deal than renting. The National Association of Realtors publishes an affordability index, which is graphically illustrated in Table 1.

The blue line is the ratio of house prices to rents and the red dots show the ratio of house prices to median household incomes. Income figures are only available through 2007, so the author gave America a 3% raise for 2008 and another 1.5% increase for 2009 through May.

With rents and incomes not moving much since 1987,  the chart is dominated by changes in house prices. Again, we see a bubble, a bust, and the approaching — but not quite reaching — of a normal level of affordability.

Table 3 confirms the trend with price/rent ratios for six major markets.

Jack Hough, in SmartMoney, Aug 4

The RE/MAX Return on Investment Report found that 11 (17 per cent) of the 65 Toronto Real Estate Board (TREB) districts reported an upswing in the value of a single-detached home in the first six months of 2009, despite one of the worst first quarters on record. The Beach (E02) saw the greatest percentage increase year-over-year at 3.79 per cent, with average price rising to $715,422, up from $689,278 in June, 2008. Pickering (E13) placed second, with the average price of a single-detached home climbing 3.72 per cent to $389,536, up from $375,577 from one year earlier. Willowdale, Newtonbrook (C14) ranked third, with a single-detached home rising in value from $754,470 to $779,537 — a 3.32 per cent increase. Rounding out the top five neighbourhoods are newcomers Downsview, Weston (W04) – where prices have climbed 2.25 per cent to $384,485 from $376,007, and Rouge, Malvern (E11) where a 1.99 per cent uptick has brought year-to-date housing values to $345,468 (from $338,738).

“Purchasers clearly moved to take advantage of greater affordability in the marketplace in the first half of the year,” says Michael Polzler, Executive Vice President, RE/MAX Ontario-Atlantic Canada. “Prices were down in virtually every neighbourhood surveyed; supply of homes listed for sale was at an all-time high; and interest rates were at historic levels. If you’re a buyer, it doesn’t get much better than that.”