Introduction
There’s a prevailing notion that Toronto doesn’t cash flow. So for the new clients that have just discovered how good Toronto freehold investments could be, they often tell us how surprised they are by it.
Honestly, the biggest downside is the difficulty of qualifying because of the higher purchase prices in Toronto, but lately, the bar is getting lower.
These days, it’s possible to find a house in Toronto for under $1 million that cash flows over $1,500 per month even at 6% interest rates, which is an eye opener for many investors.
If you are intrigued, keep watching. Let’s dive into to our favourite Toronto real estate investment in this video. Let’s get started.
How Rental Income & Cash Flows Compare
I’ll cut to the chase and show you the numbers. With the new multiplex rules only in Toronto, you can now split single family homes into up to 4 units plus a separate house in the backyard.
This eclipses the typical already increased 3 units limit in most of the rest of Ontario.
And because soft high interest rates, the prevailing market uncertainty combined with a slower summer for real estate, there’s a lot more to choose from if you are looking under the $1M mark in Toronto.
You will have to add extra units in it and with the ideal exiting home setup, it might cost around $100,000 in renovations to convert a starter house in Toronto into 3 units. So that translates to $1,500 of positive cash flows per month.
This ends up being better than the average secondary market and much better than Toronto condos. Then once you add in a garden suite, the numbers look even more convincing in Toronto.
How Values Compare
Let’s talk a bit more about values. Toronto is a more mature market with a more diverse economy, and that does translate to more stable property values.
Take a look at this chart where we compare Toronto single family home prices to those of Kitchener / Waterloo.
Toronto is our top pick but the outlook of KW isn’t too shabby either being coined the Silicon Valley of Canada.
What happened though is that KW prices went up more than Toronto in the pandemic and low interest rate environment, and then also dropped more once interest rates went back up.
So the fact is that secondary markets are more volatile and higher price risk. If you bought at the peak, you could potentially lose more.
How Capital Requirements Compare
Next, let’s touch on capital requirements, and this will go up if you choose projects that needs renovations – and realistically, this would be a lot of the projects that is available in the free hold space.
Renovation costs, regardless of where you are, is about the same.So once you factor in similar levels of renovations the gap between the secondary markets and Toronto ends up even closer.
Financing With CMHC MLI Select For Toronto Multiplexes
Going back to the potential for 5 units in Toronto compared to only 3 in the rest of Ontario, here’s where things get more interesting.
If you actually successfully make 5 units, then it allows you to qualify for the CMHC MLI Select mortgage program. In the best case, you can get as a low as a 5% downpayment, better rates compared to the big bank floor rates, up to a 50 year amortization, and limited recourse.
So this really opens up a lot more room for growth for real estate investors.
The Current Real Estate Investment Environment
Believe it or not, the freehold investor demand in Toronto has actually been pretty stable.
What we’re seeing is that people who used to invest in secondary markets are now exploring Toronto because of the better opportunities and Toronto condo investors are also shifting gears to houses.
So even though overall real estate investing demand has definitely dropped, Toronto freehold investing has been a lot more stable compared to other Ontario real estate asset classes.
What You Need To Invest In Toronto Freeholds
To sum it up, if you want to invest in these opportunities in Toronto, what you need is
- enough capital for the downpayment, closing costs, which is around $225K,
- money for potential renovations, which on average are around $100,000 if you take on projects,
- be able to qualify for close to a $800,00 mortgage.
How We Can Help
Obviously, there’s more to it after that, but that’s where our team comes in.
We’re a real estate sales brokerage that focuses on investing in freeholds in Toronto, and we’d be happy to show you opportunities that make successful conversions, generates the best ROI, and the blueprint on how to navigate financing side too if you need it.
Just head over here to book a Zoom discovery tour with us!
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