So you are thinking about becoming a Real Estate Investor and are actively searching for houses that are for sale in Toronto, but you have no idea where to begin or how to prospect potential income properties that are currently for sale in Toronto neighborhoods. As a Realtor who actively trades and invests in Toronto I can suggest you get on the bus as quick as you can! Investing in multi unit homes if done correctly will build a great residual income over time.
Multi unit dwellings that hold a minimum and a maximum of 4 units are my game. The type of neighborhoods that I look for when prospecting must have close access to great public transportation, limited supply of land, an increase in population, good schools, close to fantastic parks (such as for eg..High Park) and good public amenities. All these attributes listed above make the neighborhood desirable in the eyes of potential renters. One neighborhood of choice is The Annex; a small quite Toronto neighborhood that has all these key benefits.
Now why only 4 units and not 5 or 6 or even 7 per say? It’s simple, here is why, because any property that contains 4 units or less is considered a residential transaction in the eyes of the lender which in turn means lower interest rates and is much less complicated in obtaining the financing, also 4 units is the magic number that will yield the highest return on your initial investment.
What type of homes? And should I be prospecting properties with distinctive qualities? Yes you should! It is very important to scout specific types of dwellings that will yield the potential that as investors we seek. For example, 2 storeys, bungalows or one and a half storey homes ARE NOT what we want. You should scout a home that is a minimum 2 and a half storey or even a three storey dwelling, only because the potential space that it has to maximize 4 units.
Choosing an ideal investment property takes experience and skills. An ideal investment property is a property that is able to generate a ROI of at least 8% per annum; and at the same time provide a capital appreciation of at least 10% per annum. With the way the Toronto real estate market is shaping out to be, finding a property that yields a decent ROI is going to be tough. My prospective when analyzing an investment is much less conventional then following the standard formula. I dissect the cash flows versus the total yearly expenses plus research the vacancy rates in the local neighbourhood that I am scouting. My goal is to have positive cash flows after tax regardless of the amount at the end of the year and continue to borrow against the equity of the property to acquire others to add to my portfolio. This method as worked for me very well because real estate in my opinion is a long term investment and as long as I am not covering the total costs to carry, then the investment is ideal. The down payment is the true amount of dollars that it is costing me to acquire, and if the payback period on my initial investment is less than 5-7 years then I am golden.
And please note one other important reminder when searching for the right property, when choosing an investment property it is not about finding a place that has “the vibe” for you, it is a financial decision based on a number of key criteria.
Search all Annex Real Estate Listings including properties for sale, for rent, commercial listings and all available condos!
If you want to learn more about this approach to investing in real estate please feel free to call me at 416 -769-1616
Please feel free to leave a comment and tell us your experiences when investing in multi unit homes.