There are many new condo projects in Toronto. Their prices are affordable when compared to single home dwellings, which is why they are becoming a favourite choice of people for investing and making a home. Here are some things you must know before you decide to venture into the real estate market.
The Fundamentals of Investing
If you are planning on investing in a condo project, you must be aware of the following:
- Financing Aspects
Getting a mortgage for a property is not always easy. You must keep in mind the following:
- You would need at least 20% of the purchase price of the property as a down payment.
- If you are looking to mortgage your rental income from another property, only a portion, usually 80%, would be considered.
- If you are looking at purchasing a commercial property, you would need 50% of the purchase price for the down payment.
You must be aware of the taxes involved with investing and owning property. Listed below are a few of the aspects of taxation with regards to the real estate market:
- Rent Income - Any money collected in the form of rent from a property is considered income and subjected to tax.
- Increase in Value of Property - Any increase in the value of your property from the time it becomes an investment property till the time you sell it will be subject to taxation in the form of tax on capital gains.
Make sure you talk to your accountant and are aware of these details before you decide to invest.
Since the real estate market is unpredictable, investing for a short time period and expecting a return is quite risky. It is advisable to opt for long-term objectives.
Decide on Your Investment Goals
There are three ways to make money by investing in Toronto’s new condo projects:
- Cash Return or Cash Flow
This is the difference between the rental income and the expenses you incur. Investors usually break-even on a monthly basis, meaning the rent amount is equal to the amount paid out as an expense. It is affected by various factors such as mortgage terms and down payment amount.
- Mortgage Paydown or Equity
You can build equity when your tenant pays down your mortgage. Here, you pay a down payment and direct the rent money towards repaying your mortgage. When you sell the property, you would have built equity and can get back your original investment equal to the down payment.
This is the most common goal of investors and refers to the profit you earn when you sell your property for an amount more than what you paid to buy it. It is the value of your investment.
Calculate the Return on Investment (ROI)
There are many ways to compute the actual returns on your investment. Listed below are three calculations typically used to determine the ROI:
- Cash Flow
This refers to the movement of cash in and out of the investment, or the amount you get as income reduced by the expenses you pay out.
Cash Flow = Income - Operating Expenses - Finance Cost
- Rate of Capitalization
Also known as the cap rate, it refers to the rate of return on the investment. It depends on the income generated by your property.
Cap Rate = Operating Income/Purchase Price
- Return on Investment (ROI)
This refers to the return you would earn on your investment and is used to evaluate its efficiency or to compare the performance of different investments.
Investing in New Condo Projects in Toronto - The Pros & Cons
Listed below are the advantages of investing in a new condo:
- You will have the benefit of break-even at 20% down payment.
- You will have the opportunity of appreciation in value and increased cash flow over a period.
- You can easily find a tenant for a condo.
- If you manage to find a unique condo in a great location, you can reap the benefits of appreciation.
There may also be some disadvantages to investing in a condo:
- You may have obligations due to the Residential Tenancies Act.
- It works best as a long-term strategy.
New Condos in Downtown Toronto by The Davies
If you are looking for a new condo for sale in downtown Toronto, check out our floor plans for luxury condominiums at The Davies. We offer several exceptional amenities to make your life comfortable. For more information, get in touch with our sales team by calling 647-360-9588. You may also register online with us to learn about pricing and other details.
Also Read: Impact of Supply & Demand on Toronto’s New Condo Projects!